I was asked to help form part of a working group on mortgage arrears which has yet to publish their respective papers on various topics. The one I undertook had to do with mortgage arrears and the issue of life cover on a loan.
While the intention wasn’t to release anything for a few weeks yet, I thought it was pertinent to share this one given some of the days headlines (link to the paper is at the end of the blog).
The area of mortgage protection is a tricky one because some people are paying beyond the necessary amount and others are not, but they equally can’t make the payments so the policy lapses. What happens next is that in some cases a person dies, one example we are working through involves a suicide, and others involve people who become terminally ill.
Deirdre Clune made headlines today when she pointed this out, it’s covered in TheJournal.ie and also in The Examiner. It involves a lady with terminal cancer who will not receive a life cover payout when she dies, she wants banks to keep track of this and the Central Bank have said that they don’t do this.
The individual banks do so the information is there, but it can also be difficult to see through because sometimes people get a replacement policy at some point in the future and don’t assign it to the lender. There are also issues of who is ‘responsible’.
As far as the legislation goes it’s covered in the Consumer Credit Act and the responsibility rests with the borrower, but are there other things a lender could do? One simple idea is perhaps to add the person to a group policy at the banks expense, although to do so when a person is health impaired probably wouldn’t work.
Banks often do buy insurance that you don’t hear about, in an abandoned house they add the property to their property insurance indemnity policy, so why not take a similar approach if they know there is a lapsed life policy? Let us not forget, the banks do know about this because they hold the assignment and are informed of it.
Another is upon being informed of this for the bank to (if there is equity in the property) pay the premiums in return for a lien commensurate with the premiums paid, for instance if a person went into a coma, lapsed payments then died?
There are other ways to resolve this issue, along with the common one of people paying too much for insurance and being in arrears. The working paper draft is here.