I have this comment from a Miss Cecilia Yong who asked on this blog post,
“Question on mortgage reducing insurance: what is the relationship between bread winner (person serving the property loan) and the dependant? Must is be parent-child relationship? What about husband-wife relationship? Can this suffice?”
First and foremost, thank you for visiting and reading my blog and definitely for this valuable comment! And I will try to answer this to the best of my knowledge (my answer is rather personal and there can be some legal element to this, so for better clarification, you may have to consult a lawyer and such)
Let’s first break down the question into different definitions:
1. Bread-winner: this is the general term used to describe someone who is providing the main financial income to the family. Should anything happen to this particular person, there could be some drastic financial crisis unless plans have been made beforehand.
2. Dependents: I have done up a few searches and most sites give the definition as those who depends on the so-called bread-winner for a financial income. So people who can be called dependents could be a) your parents b) possibly your grandparents c) your children d) your siblings (if in some situation, they do depend on you).
3. Mortgage Reducing Insurance: As mentioned in my post, there’s an existence of a mortgage loan between two parties – owners of a property and a Financial Institution who provides this loan. And do note in the case of a mortgage loan, it may not just be the Bread-winner being the main owner of the loan, and one can always add the names of their spouse, parents or siblings to be in the mortgage loan agreement.
Should anything happen to any of the parties as mentioned above, the remaining parties will still continue to bear the remaining loan repayment term.
And to apply for the Mortgage Reducing Term Insurance, the presence of the loan agreement must be there and this also mean that those name(s) listed in the loan agreement are allowed to get covered with the Insurance. Terms and conditions do apply (e.g. home-makers have a maximum limit in insurance coverage and may not be allowed to get covered in full – matching the actual loan)
So What Happened When There’s A Claim?
As mentioned earlier, I am not the expert in terms of claim or in terms of the distribution of claim proceeds. So my answer is really based on my views and opinions.
So when there’s a claim on the Mortgage Insurance and the claim is properly done – there’s a payout of the proceeds according to an arrangement (if done so earlier) – to either the bank (if there’s initial arrangement to pay the bank first), to the estate of the deceased or to the nominees done in a legal arrangement like a Will.
For example, if the insurance is arranged so to pay off the bank, and after settling the loan, should there be any remaining amount left from the insurance proceeds, the dependents have the right to get a share of it (please kindly clarify this with the proper authority) and at times there’s a need to prove the relationship of the dependents – to what extent do the dependents depend financially on the deceased (covered under the insurance) to justify that they deserve a share of the remaining insurance proceeds.
The procedure (to prove) may also apply even if the proceeds should be paid to the estate. The arrangement of the payout is usually much clearer when done like in like a legal document like a Nomination or a Will (please kindly clarify with the proper authority as well)
As such, legal relationships like parent-child (<- legal), husband-wife (<- legally married with certificate of marriage) can usually have the surviving party be listed as dependents.
Lastly, I hope with this post, I do answer the comment posted by Ms Cecilia Yong. If you have some experience or knowledge with regards to this, please kindly share as well. We can open this up for a discussion.