Lowering mortgage costs by cancelling life policies?

Caution: I am not advising that anybody breaks their mortgage contract, or does this, it’s just an interesting ‘what if’ because we are seeing more people cancelling their life assurance in order to make ends meet.

When you take out a home loan a standard condition is to have a life insurance policy in place and to have it assigned to the lender. This comes about from S126 of the Consumer Credit Act 1995, and while there are some exceptions as listed in S126(2), the majority of home loans have a policy in place.

When you take it out you then get a deed of assignment, meaning you are paying the policy but the bank is actually the beneficiary. In practice, if you die, the bank gets the insurance policy and if there is any money left over afterwards it goes to your estate.

If you went directly to your bank to get a loan chances are that you have the insurance ‘all in’ where you got sold an own-label product and usually this is lumped in with your monthly …

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