I’ve read on your blog that you should keep serious illness cover away from your mortgage protection policy so the bank can’t get the any payout should I make a claim.
But what if I buy a life insurance policy with independent critical illness cover and give this to the bank for my mortgage?
Does this mean I’ll get the proceeds of any serious illness claim or does the bank still get it? I hope that makes sense!
A quick recap of the blog Marcin is referring to.
When you’re getting a mortgage, you have to get a mortgage protection policy and assign (pass ownership) it to the bank. If you die, the policy pays out a big lump of money to the bank to clear your mortgage. That all seems fair enough.
However, and here’s the sneaky part – if you add serious illness cover to your policy and make a claim on the serious illness (say you get cancer or suffer a heart attack), who do you think gets the money?
Your money goes to the bank because they are the beneficial owners of the policy – remember when you assigned the policy to the bank, well you transferred all of the benefits attached to the policy.
So even if you need that money for life-saving surgery, you’ll have to beg the bank to give it to you.
Good luck with that.
Please, if you’re considering serious illness cover, and don’t want the proceeds to be used to pay down your mortgage, always buy it on a separate policy.
Give as little protection to the bank as possible.
Protect yourself instead.
Remember our friend Marcin from earlier on, well he was getting a mortgage of €250,000.
He also wanted to put €50,000 Serious Illness Cover in place.
I advised him to:
But Marcin didn’t like the fact that the cover on his mortgage protection policy would reduce over time as he wanted it to clear the mortgage and leave some money to protect his family.
So I advised him to:
But he was insistent on one policy to cover the mortgage and his family.
So to answer his question:
Who would get the proceeds of a serious illness claim on a life insurance policy with independent serious illness cover that was assigned to the bank.
No matter how you structure your policy, if you assign it, the bank will become the beneficial owner and will get any payout on your policy.
OK, in this case, go ahead and add serious illness cover to your mortgage protection. This is the most affordable way of making sure your mortgage is cleared on death or should you suffer a critical illness.
Just be aware:
I hope that’s all clear.
Just to recap:
Always buy your serious illness cover on a separate policy (unless you want the proceeds to go directly to the bank to pay down your mortgage).
By the way, don’t obsess with serious illness cover if you haven’t considered income protection.
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