MMcH writes from North Dublin: I know you have written extensively about the importance of maintaining life insurance even in difficult financial times and I fully agree with this advice. I would however, like to ask your opinion on the following: my husband and myself (both now 50) pay approx €350 per calendar month on a 20 year mortgage of €500K. My husband was "weighted" as he had pre-existing illnesses. We now find this payment punitive and while we both have life assurance cover associated with our jobs, it was pointed out that this was only in place as long as we both were in these particular positions. Is there any way we can reduce the premium without going though the stress of hawking ourselves around to new brokers? Can we reduce our cover as the outstanding amount on the mortgage has been reduced?
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I asked financial advisor John Geraghty of www.labrokers.ie for his opinion about your case. Without knowing more about the type of loan you have and the medical reason for the loading of the premiums, he was unable to determine whether your policy is ‘good’ value or not. Nevertheless there are ways to try and reduce the cost he says though it depends on the cooperation of both the lender and insurer. First, you could, as you suggest yourself, ask to switch to a policy that reduces the cover in line with the depreciating balance of capital you owe. Not all insurers are in a position to do this as it depends on the terms of the underwriting of the policy, he says. Another option is to seek cheaper cover from another provider, “but given that your readers are probably a couple of years older now and the health condition they refer to may still exist, they may not be able to secure a lower quote.” If your husband’s health is better, however, the loading penalty might be lifted and this savings may cancel out any higher age-related premium, he says. Next, since you are now both 50, you can ask your mortgage lender if they would be willing to waive the requirement for the life cover. But, says Geraghty, only expect them to do this if they are satisfied that the surviving partner’s income is sufficient to comfortably meet the loan repayments and/or the sale value of the property would cover the outstanding balance owed to the lender. Finally, you don’t say if you have any other life insurance policies of similar duration to the remaining term of your mortgage, other than your death in service benefits (which cannot be assigned against a mortgaged debt). If you do, the lender might allow these to be assigned to the loan, therefore allowing you to reduce the balancing cover (and cost) of the existing policy. Again, this depends on the existing policy being amended and not having to be re-issued. If that happens, says Geraghty, your ages and health circumstances would probably result in a higher premium that might cancel out the benefits of having access to the other policy. Given how there are so many permutations to consider, you really should engage a good broker to help you cut your costs.