Mortgage Repayment Cover

(a) This cover traditionally has comprised a monthly sum paid to the lending institution for the equivalent of the monthly mortgage payment for interest and capital repayments. No cash payment is received by the policyholder, the mortgage lender usually receives the full benefit sum. Six months is the common maximum time frame for such benefit payments

(b) Often the cover also consists of life cover as well so the mortgage can be repaid in full upon the death of the life insured. The life cover usually reduces automatically each year, in accordance with the projected reduction in the outstanding mortgage balance.

(c) Other types of benefit may be added to basic life cover, such as income protection or trauma.

(d) Some bank mortgage repayment cover may also offer limited cover for sickness, redundancy or bankruptcy for a period not exceeding six months, and as per (a) above, in the event of a claim the proceeds are paid direct to the mortgage holder, not to the life insured.

(e) Often mortgage repayment cover ceases when the mortgage is repaid, other times the cover remains in force, regardless of the existence of the original mortgage. 

(f) Common problems with bank mortgage repayment insurance:

(i) The cover may keep reducing automatically, even if you increase your mortgage later on.

(ii) The bank will give you no policy choice.

(iii) The bank can insist on you taking out insurance, but by law they cannot insist that you take it out from them.

(iv) The bank may sell redundancy cover to the self employed, which by definition cannot be paid.

(v) If you ever increase the mortgage subsequently, the life cover will not automatically be increased by a corresponding sum. This may create a major difference between the value of the debt and the value of the insurance, about which the life insured is not usually made aware of.

These summaries are intended for general information only. Please refer to the relevant policy document for full policy provisions and terms. By New Zealand Law the consumer has a 14 day free look term during which the contract can be cancelled with no obligation and with a full refund of premium.