- How mortgage protection insurance can be terminated.
- Premium refund variations.
How mortgage protection insurance can be terminated
Mortgage protection insurance polices usually last for several years. Single premium polices can last up to five years in line with the loan agreement term. Monthly premium payment polices may be open ended and last for as long as the monthly premium is paid.
With the above in mind these are the scenarios in which the policy may be terminated.
- At the end of the mortgage term. Natural closure date.
- When the customer is no longer eligible for the cover. This might apply if there is an upper age limit which the customer reaches.
- Before the end of the term because the loan was repaid early or cancelled and another loan taken out in its place.
- The customer cancels the insurance.
- The insurer cancels the insurance.
- The customer exercises cancellation rights during the cooling off period.
- The customer dies.
At the end of the mortgage term.Natural closure date
Once the loan arrangement has been repaid there is no more insurable interest. Where the mortgage protection policy is fixed to match the loan agreement term then this should occur automatically. On a stand alone policy the customer may need to activate cancellation.
When the customer is no longer eligible for the cover
If the customer reaches the upper age limit then they become illegible for the cover and the policy would cease. Often the insurer will not allow such polices to be taken out, unless the customer’s is of an age where he will not reach the upper age limit until after the loan period has completed.
If the insurer was aware that the customer would become ineligible for cover part way through the loan agreement, then it is likely that this would have been factored in to the premium charge and therefore no refund premium would be due.
Before the end of the term because the loan was repaid early or cancelled and another loan taken out in its place
If the customer settles the loan early, then again the insurable interest is removed and the cover is no longer necessary.
The customer may wish to reduce his debts, have come into money, or wants to consolidate several loans and this loan is being cancelled.
If the premium was a single premium, and assuming there is no “no- refund“clause, then a partial refund would be made.
The customer cancels the insurance
Unless the policy contains a ‘no cancellation’ clause the customer will have the right to cancel the policy if they feel they have no further need of the insurance.
This is more likely to happen with a monthly premium policy where the customer will notice the regular charge being made. There is usually a requirement for the customer to provide a certain notice period of say 30 days.
With monthly premium payments the premium payment just stops. If the premium was paid as a single premium, then a partial refund would normally be due, unless there was a ‘no refund’ clause.
The insurer cancels the insurance
Whilst on monthly premium payment polices the insurer does have the right to cancel it would be unusual for them to do so. The only reasons an insurer might cancel a mortgage protection policy would be in the event of fraud or suspected fraud or the customer failed to keep their premium payments up to date or the customer exceeds the eligible age.
A premium refund would be unlikely to be made where actual fraud existed.
The customer exercises cancellation rights during the cooling off period
FSA Insurance conduct of business rules grants the customer (not commercial customers) the right to cancel the policy within 30 days (14 days if there is no life cover included) if the customers feels the cover is unsuitable.
The customer dies
Where life is covered by the mortgage protection insurance policy the outstanding balance on the debt excluding arrears is repaid and the policy ends. If life cover is not provided the policy still terminates.