Mortgage Life Insurance requirement question

ploughna

My wife an I are living overseas and just received mortgage approval (in principle) with an Irish bank for a property we're purchasing in Ireland. One of the conditions attached is a life insurance requirement. However, the 1995 Consumer Credit Act outlines a number of conditions where this requirement does not apply:

Per Section 126 (I cannot post a link because I'm a new user but the full text is available on irishstatutebook dot ie):

(2) Subsection (1) shall apply as respects all housing loans except—

(a) where the house in respect of which the loan is made is, in the mortgage lender's opinion, not intended for use as the principal residence of the borrower or of his dependants,

(b) loans to persons who belong to a class of persons which would not be acceptable to an insurer, or which would only be acceptable to an insurer at a premium significantly higher than that payable by borrowers generally,

(c) loans to persons who are over 50 years of age at the time the loan is approved,

(d) loans to persons who, at the time the loan is made, have otherwise arranged life assurance, providing for payment of a sum, in the event of death, of not less than the sum referred to in subsection (1).

Both of us are over 50 and the property will not be our primary residence (although this may change in the future if our long terms plans to move back to Ireland work out) but based on just the age factor alone, our interpretation of this legislation is that we should not need the life cover. However the bank insists on this (at least that's what I'm told by the mortgage intermediary I'm working with) without providing a reason.

Does anyone have any knowledge in this area? Legally, it seems clear to me, but the other issue I'm dealing with is time and don't want to delay the purchase process or become a 'problem' that results in my financing offer being withdrawn for some 'other' reason.

Thanks in advance for any words of wisdom!

Jim2007

You cannot take subsection 2 out of context and read it to suit you. Subsection 2 provides reason why subsection 1 should not apply... BUT section 1 is a requirement on the lender to make arrangements through an insurer for live insurance on the borrower in certain circumstances.

There is nothing in there that grants you any rights what so ever to obtain a mortgage without live insurance nor anything that restricts the lender from imposing such a condition on your mortgage.

coylemj

Jim2007 wrote: »

There is nothing in there that grants you any rights what so ever to obtain a mortgage without live insurance nor anything that restricts the lender from imposing such a condition on your mortgage.

+1 The act says that if certain conditions are met, the lender must arrange a mortgage protection policy. Just because those conditions don't apply in your case doesn't mean that the bank cannot insist that you have such a policy. You're trying to infer something that isn't in the legislation.

Here is a link to the section the OP is quoting....

http://www.irishstatutebook.ie/eli/1995/act/24/section/126/enacted/en/html#sec126

dellas1979

Interesting read...

What would happen then if your wife/you/both passed away?

What do you think life assurance is for or why wouldn't you need it?

ploughna

Thanks all for clarifying the legislation for me.

@dellas1979 - good question, but I don't need it because if one of us were to pass away, the other has the capacity to repay either on an ongoing basis from earnings or a lump sum from long-term savings. We also have separate life insurance that will more than cover the amount, but the bank is not a named beneficiary and while I could possibly change this, they don't want to deal with an overseas life insurance company and want a standalone dedicated policy.
We could potentially buy the property outright without a mortgage but don't want to do so because we'll get 100% tax relief on the mortgage interest (we're resident in the US) and with mortgage interest rates so low, we can get a better return by keeping our savings in other higher return investments (not without risk mind you)

kippy

ploughna wrote: »

Thanks all for clarifying the legislation for me.

@dellas1979 - good question, but I don't need it because if one of us were to pass away, the other has the capacity to repay either on an ongoing basis from earnings or a lump sum from long-term savings. We also have separate life insurance that will more than cover the amount, but the bank is not a named beneficiary and while I could possibly change this, they don't want to deal with an overseas life insurance company and want a standalone dedicated policy.
We could potentially buy the property outright without a mortgage but don't want to do so because we'll get 100% tax relief on the mortgage interest (we're resident in the US) and with mortgage interest rates so low, we can get a better return by keeping our savings in other higher return investments (not without risk mind you)

Just get the mortgage protection insurance and assign it to the bank.

Henry Ford III

coylemj wrote: »

+1 The act says that if certain conditions are met, the lender must arrange a mortgage protection policy. Just because those conditions don't apply in your case doesn't mean that the bank cannot insist that you have such a policy. You're trying to infer something that isn't in the legislation.

Here is a link to the section the OP is quoting....

http://www.irishstatutebook.ie/eli/1995/act/24/section/126/enacted/en/html#sec126

Lender doesn't have to arrange the policy.

coylemj

Henry Ford III wrote: »

Lender doesn't have to arrange the policy.

'Arrange' is the word used in the legislation......

126.—(1) Subject to the provisions of this section, a mortgage lender shall arrange, through an insurer or an insurance intermediary, a life assurance policy .......

Henry Ford III

coylemj wrote: »

'Arrange' is the word used in the legislation......

126.—(1) Subject to the provisions of this section, a mortgage lender shall arrange, through an insurer or an insurance intermediary, a life assurance policy .......

No argument with what the legislation says.

The selective quote you used was misleading though.

Thanks for clarifying it.

Liam D Ferguson

coylemj wrote: »

'Arrange' is the word used in the legislation......

126.—(1) Subject to the provisions of this section, a mortgage lender shall arrange, through an insurer or an insurance intermediary, a life assurance policy .......

I'm a broker and not a solicitor but that wording in the legislation seems to be the cause of some confusion. In practice, lenders don't have to arrange Mortgage Protection policies for them to be accepted. Most people would now be aware that a broker can almost always get a better price on Mortgage Protection than a bank can, given that banks are just acting as agents for a single insurance company, while a broker gets the best price from a range of companies and an established broker can often arrange discounts also.

There is also the matter of the Consumer Credit Act banning conditional lending, i.e. a lender saying that it won't give you a residential home mortgage unless you take out x, y and z insurance products with them.

The legislation the OP links details the occasions when it is permissible for a lender to waive the requirement for life cover. As has been said here, in those circumstances it is permissible but not obligatory for a lender to waive the life cover condition. If a lender wants to insist on life cover, they still can. But they cannot insist that the customer starts a policy with their chosen insurance company.

coylemj

Liam D Ferguson wrote: »

I'm a broker and not a solicitor but that wording in the legislation seems to be the cause of some confusion. In practice, lenders don't have to arrange Mortgage Protection policies for them to be accepted.

+1 the wording of the legislation would appear to be somewhat clumsy. 'Arrange' was a poor choice of word since it implies that the onus for establishing the policy lies with the lender when the spirit of the legislation would indicate that having the policy in place when the loan is advanced is what is required, regardless of who arranges it.

Liam D Ferguson

coylemj wrote: »

+1 the wording of the legislation would appear to be somewhat clumsy. 'Arrange' was a poor choice of word since it implies that the onus for establishing the policy lies with the lender when the spirit of the legislation would indicate that having the policy in place when the loan is advanced is what is required, regardless of who arranges it.

That's certainly my understanding of it and what I know happens in practice all the time.

Jim2007

Henry Ford III wrote: »

Lender doesn't have to arrange the policy.

They actually do in accordance with the legislation and a failure to do so in the absence of any other causes, would give the executors of an estate an opportunity to repudiate such a debt. Weather or not it would succeed remains to be seen by the courts.

Henry Ford III

Jim2007 wrote: »

They actually do in accordance with the legislation and a failure to do so in the absence of any other causes, would give the executors of an estate an opportunity to repudiate such a debt. Weather or not it would succeed remains to be seen by the courts.

No they don't. Read the entire section again.

I arrange mortgage protection policies regularly (I did one for a client yesterday). I'm not a lender.

Q.E.D.

coylemj

Jim2007 wrote: »

They actually do in accordance with the legislation and a failure to do so in the absence of any other causes, would give the executors of an estate an opportunity to repudiate such a debt. Weather or not it would succeed remains to be seen by the courts.

The requirement that the lender arranges a policy does not apply if the borrower has taken out their own policy.....

(2) Subsection (1) shall apply as respects all housing loans except—

(a) <not your principal private residence>
(b) <uninsurable borrower>
(c) <borrower over 50>

(d) loans to persons who, at the time the loan is made, have otherwise arranged life assurance, providing for payment of a sum, in the event of death, of not less than the sum referred to in subsection (1).

Trish56

The condition re obtaining Mortgage Protection is standard on all Loan Offers however you need to request a waiver from the lender in writing outlining the reasons why and they will consider same. Would be no harm to attach a copy of the life policy that you hold. You can do this through your Solicitor as your Broker should be aware that lenders do allow Waivers depending on circumstances.

ploughna wrote: »

My wife an I are living overseas and just received mortgage approval (in principle) with an Irish bank for a property we're purchasing in Ireland. One of the conditions attached is a life insurance requirement. However, the 1995 Consumer Credit Act outlines a number of conditions where this requirement does not apply:

Per Section 126 (I cannot post a link because I'm a new user but the full text is available on irishstatutebook dot ie):

(2) Subsection (1) shall apply as respects all housing loans except—

(a) where the house in respect of which the loan is made is, in the mortgage lender's opinion, not intended for use as the principal residence of the borrower or of his dependants,

(b) loans to persons who belong to a class of persons which would not be acceptable to an insurer, or which would only be acceptable to an insurer at a premium significantly higher than that payable by borrowers generally,

(c) loans to persons who are over 50 years of age at the time the loan is approved,

(d) loans to persons who, at the time the loan is made, have otherwise arranged life assurance, providing for payment of a sum, in the event of death, of not less than the sum referred to in subsection (1).

Both of us are over 50 and the property will not be our primary residence (although this may change in the future if our long terms plans to move back to Ireland work out) but based on just the age factor alone, our interpretation of this legislation is that we should not need the life cover. However the bank insists on this (at least that's what I'm told by the mortgage intermediary I'm working with) without providing a reason.

Does anyone have any knowledge in this area? Legally, it seems clear to me, but the other issue I'm dealing with is time and don't want to delay the purchase process or become a 'problem' that results in my financing offer being withdrawn for some 'other' reason.

Thanks in advance for any words of wisdom!

Leprechaun77

Another consideration outside of the discussion here is whether the OP would be eligible to even take out a life insurance policy in Ireland. It would be my opinion that due to residency, no Irish insurer would have a license to write such business.

The authorisation for most life insurance companies will be limited to accepting business from residents of the State. (Domiciliary residence). Whilst it is possible in some instances to get a policy as a foreign resident on an Irish mortgage/property, there are particular issues with US residents due to the relevant tax treaties in place.

It may be best to request a waiver in this instance, outlining the various other abilities and provisions available to pay the mortgage on death.

ploughna

As an update and to close out this thread - the mortgage provider has granted us a waiver to this requirement, so quite happy about that. During the process, however, we did find two insurance companies that were willing to issue policies albeit with a few conditions - the key one being that we do intend moving back to Ireland at some point.

We also looked into the US specific concern - this turned out to be an issue only for policies that have a cash value during the life of the policy versus one that pays out only on death. Having a cash value is treated as a foreign investment from a tax standpoint. It's doesn't preclude having such a policy, but makes it more difficult from a taxation standpoint (as anyone who has filed a US tax return can probably attest!)

Leprechaun77 wrote: »

Another consideration outside of the discussion here is whether the OP would be eligible to even take out a life insurance policy in Ireland. It would be my opinion that due to residency, no Irish insurer would have a license to write such business.

The authorisation for most life insurance companies will be limited to accepting business from residents of the State. (Domiciliary residence). Whilst it is possible in some instances to get a policy as a foreign resident on an Irish mortgage/property, there are particular issues with US residents due to the relevant tax treaties in place.

It may be best to request a waiver in this instance, outlining the various other abilities and provisions available to pay the mortgage on death.