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Is this policy still valid?

(17 Posts)
ConfusedbyInsurance Mon 24-Feb-14 11:49:16

I was going to post in money or legal but there's more traffic here and it relates to blended families.

My DH has been divorced for 5 years - clean break, and she bought him out of the FMH (she was the higher earner).

The mortgage they shared was endowment, and they each had a decreasing term life insurance policy - DH paid for a policy that paid out to him on his DW death, and vice-versa. DH cancelled his policy when his share of the house was transferred to her.
She's recently told him (in a "I wish you were dead" kind of way) that she had continued to pay her policy, so therefore, she will financially benefit from his death confused. I'm assuming she also has a policy that pays out on her own death to cover her mortgage, but that's neither here nor there, really!

I know you can insure against death of an exSpouse to cover child maintenance payments - but, is the policy she has on DHs life still valid if it was taken out while they were married and jointly liable for a mortgage?

It's a bit freaky, thinking that she's contemplating benefiting from his death, but I don't think she'd hire a hit man......shock

purpleroses Mon 24-Feb-14 11:54:52

If the policy is specifically tied to paying out your DH's share of the mortgage should he die, then I guess she's wasting her money because his share = £0 so it would pay £0.

But yes you can take a policy out on an ex-spouse, to mean you get some money (eg to cover maintenance) if they die.

I think you invalidate it if you hire a hitman though grin

ConfusedbyInsurance Mon 24-Feb-14 12:01:39

purple When I looked into it for myself, the insurance to cover child maintenance would pay out to my DD, not me, and her Dad had to sign to agree?

It makes sense for an exW to insure against loss of spousal maintenance, but is it really legal to hold a life insurance policy on someone you have no financial ties with? What's to stop you insuring random strangers and benefiting from their death?

ivykaty44 Mon 24-Feb-14 12:03:48

you used to be able to purchase others peoples endowment policies and then continue to pay them - of course if the original person died a stranger would have had the policy paid out

OwlCapone Mon 24-Feb-14 12:08:56

Why do you care? It doesn't actually affect you so I'd just forget about it TBH. It doesn't matter if it's still valid or not as neither you nor your DH are paying. The decreasing term assurance will pay out less and less as time goes by so tents a crap investment anyway. It was meant to cover the gap between the value of the endowment and the amount of the mortgage whilst the endowment (theoretically!) increased in value.

Petal02 Mon 24-Feb-14 12:18:08

What's to stop you from insuring random strangers and benefitting from their death?

That's what I thought - it's a bit weird!

BuzzLightbulb Mon 24-Feb-14 13:30:15

Normal practice years ago was to take out an endowment and the mortgage company insisted on that being assigned to them.

That was then changed so that assignment wasn't necessary, instead borrowers were simply asked if they had life cover in place, and a means to repay the loan. An endowment obviously performs both functions.

So it's quite normal for her to keep a policy on her ex's life where it is also an investment, at maturity she will get the value. Bizarrely she will also profit from your DH's untimely demise should that happen.

It has been costing her though, she's had life cover charges deducted from her premiums for all this time, unless it was close to maturity when they split she may have been badly advised to keep it going.

OwlCapone Mon 24-Feb-14 14:06:27

What's to stop you from insuring random strangers and benefitting from their death?

Mainly the fact that you don't know their name, DOB, medical history etc.

A reducing balance life insurance policy is different from an endowment policy - it's a straight life insurance policy with no savings.

It is usually taken out alongside a mortgage to ensure the mortgage is repaid in the event of the death of the policyholder (it is assigned to the lender).

As the life cover reduces over the term of the policy, there is less and less of a payout as the policy becomes older - so your DH's ex will have less and less cover on him as time goes on (so it may not be worth getting a hitman by now wink )

Insurable interest is usually only proven at policy inception - so if you cease to have an insurable interest on the person you took out cover on, it is perfectly legal to continue the policy (it would create an admin nightmare for life insurance companies to police this if people had to declare if their insurable interest in someone had ceased!)

Insurable interest means that you will suffer financially if that person dies (e.g. if you have joint loans, cohabit or are married and share income, have children together etc). An insurance policy is not valid without it - so it's another thing stopping you taking out insurance on randomers!

ConfusedbyInsurance Mon 24-Feb-14 14:15:43

Funny you should mention that owl - when DH volunteered to share his (up to date) medical history with their DS optician (genetic eye problems), his exW refused, claiming that as they'd been married for so long, she knew all there was to know about him.
Clearly, the concept that he may have been diagnosed with conditions subsequent to their divorce is difficult for her to understand!
I assume the insurers would have to be kept up to date with medical history of the person whose death is insured against?

At least DH knows to keep looking over his shoulder as she obviously believes she will be rich beyond her wildest dreams if he dies - whether she will or not is another matter!

OwlCapone Mon 24-Feb-14 14:42:16

I assume the insurers would have to be kept up to date with medical history of the person whose death is insured against?

No, for life insurance, the risk they take on is based on the medical information at the time. It's a long time since I've worked in the life insurance industry!

purpleroses Mon 24-Feb-14 15:15:42

I can see where you're coming from being a bit uncomfortable about it. It's one thing taking out insurance against something awful happening, just so that you're covered financially if it does. But feels quite different someone else saying they'll be rich if your DH (who they hate!) dies hmm

Notify Mon 24-Feb-14 15:42:28

Life Assurance Act 1774 It's Wiki but I think it's good

No you can't just insure the life of a random stranger, there has to be a "definite expectation of suffering a financial loss directly due to someone's death." If Dh is paying maintenance payments then she does fulfil that requirement but in any case the situation when the policy was taken out will be what matters - divorce will not invalidate an existing policy

TBH I think it was a good a prudent decision of hers to continue the policy in order to help her support her children should the worst happen and I would question whether your DH did the right thing in cancelling his - presumably, should anything happen to her his (your) financial responsibility towards the children would increase?

ConfusedbyInsurance Mon 24-Feb-14 15:54:02

DH cancelled his "life of another" policy on her when he took out a policy linked to his new mortgage, before he and I got together!

I understand the sense in insuring against loss of child maintenance, I looked at it myself for my DD - but she would have been named as the beneficiary (in trust), and her Dad had to agree to it. I was told that I couldn't benefit (from a new policy) because I didn't have what someone has referred to upthread as an "insurable interest"- I don't get spousal maintenance from my ex, and DH doesn't pay it to his, either. But as the policy was already in place when DH and his ex split, I suppose that's different.

If the worst happened and something happened to DHs ex, then (assuming the DSC came and lived with us) we'd manage with the additional child benefit, and of course DH wouldn't be paying child maintenance anymore, either - it wouldn't occur to me to insure against their Mum no longer being their primary carer!

BuzzLightbulb Mon 24-Feb-14 17:10:33

Onths bottom.....

OP said endowment, and decreasing term.

If it were a decreasing balance life cove only presumably it would have been used in conjunction with a repayment mortgage and I can't see the benefit of her maintaining the policy instead of taking out a new one in her own name.

If OP's DH has cancelled his policy there would have been no cover on her life, and it would appear to be bad financial planning to not provide for your dependants on your demise and instead hope your ex went first.

Bit of a gamble ?

ConfusedbyInsurance Mon 24-Feb-14 17:18:30

I may have misled - it was an 'interest only' mortgage, rather than endowment - sorry!

BuzzLightbulb Mon 24-Feb-14 18:11:51

Then your username is well deserved....

If it was an interest only mortgage, it's very likely they took out an endowment to pay it off.

Clincher is how long ago this would have been.

And it doesn't really matter, she can do it if she wants.

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