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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 25358
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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hi I am getting a joint mortgage with my sister. it will be

Customer Question

hi I am getting a joint mortgage with my sister. it will be on a tenancy in common. joint life insurance has been suggested between myself and my sister. As I understand it, it makes one payment on the first death to cover the whole mortgage. however I have a partner and children so the question is on the event of my death who would benefit from the joint life insurance would it directly pay off the mortgage and then as they are the people who I leave my estate to in my will do they then get half of the paid off house or does my sister only benefit from a joint life insurance were I to die
Submitted: 3 years ago.
Category: Law
Expert:  Joshua replied 3 years ago.

Joshua :

Thanks for your question. Please kindly RATE my answer when you are satisfied

Joshua :

Do I understand correctly that you have yet to apply for the life insurance policy please and this question has arisen at an early stage? Who will be living in the property?

JACUSTOMER-ivevd4c3- :

my sister I will be living with my partner and child the life insurance hasn't been applied for yet

JACUSTOMER-ivevd4c3- :

so just my sister living at property that is being bought

Joshua :

Sorry for the delay in reverting to you.

Joshua :

Life insurance is exactly as you say a policy hat in return for a premium pays normally a lump sum on death. The payout is held in trust and goes to the person or persons you nominate on a form you give to the life insurance company. It never forms part of your estate which can be helpful for example for inheritance tax purposes if this were relevant. It also does not matter what your will says. The payout will go to whoever you nominate on the above form so it is important this is kept up to date.

Joshua :

What that person or persons choose to do with the money is up to them. They could use it to pay off the mortgage and own a bigger share in the property or they could put it in the bank or invest. The choice it theirs.

Joshua :

If you wanted to give some or all of it to your child you could nominate that it should go to a trust for your child and specify ho the money can be used until your child or children are 18 or older - e.g. for education and maintenance etc.

Joshua :

You could choose to benefit your sister with the life policy but presumably as you have a child you would prefer to ensure that your child is provided for either directly or through your partner. The choice however is entirely yours.

Joshua :

Is there anything above I can clarify for you?

JACUSTOMER-ivevd4c3- :

well according to my sister the joint life insurance will directly go to the mortgage so what is the case in that circumstance. I will have a joint life insurance with my sister and apparently on the death of one of the policy holders the lump sum will be paid directly to the mortgage

JACUSTOMER-ivevd4c3- :

is that possible? so in that case will my family still get hal a paid off house

Joshua :

It is possible to set up a policy that automatically pays off your mortgage - you don't have to do that but you can.

Joshua :

If this is what you choose to do then what will happen is that because each of you own half the house upon a death the policy will pay off the mortgage and so as a consequence both of you will still own half the property but now it will be mortgage free so your respective shares will be worth that much more.

Joshua :

The survivor of you will therefore own half of a mortgage free property and the share of the person that passes away will be left under the terms of that persons will and that share will also be mortgage free so will benefit any beneficiaries under their will.

Joshua :

So for example if you were to pass away first under the above arrangement your sister would continue to own her half share mortgage free and your half would pass mortgage free to whoever you specify in your will.

Joshua :

Is there anything above I can clarify for you any further?

JACUSTOMER-ivevd4c3- :

so what about joint life insurance where it pays out a lump sum on the death of one with a joint policy will the sum go to the remaining policy holder

Joshua :

You can set life insurance up in any way you wish and to be paid to anyone you wish. From what you are saying your intentions or at least your sisters wish is to set it up so that it is paid to your mortgage on first death. If you do this it will go to pay off your mortgage as discussed above. If you choose this approach the pay out would not go to the remaining policy holder but to the lender but the remaining policy holder would indirectly benefit because their half share of the property would be mortgage free as a result. I hope that is making sense?

JACUSTOMER-ivevd4c3- :

Ok yes that makes sense one other thing.... we wrote our own little contract saying that on the death of one of us the other can buy the property at the index price from anybody that inherits. but would that contract still stand if one of us dies as the will then reverts ownership of the hopuse to someone else so would they have to sell like the agreement says and would they have to take the index price....or as they are now the owners they can do what they want

Joshua :

Did you have that agreement witnessed?

JACUSTOMER-ivevd4c3- :

yes by our brother

Joshua :

Thanks. You need to be a little bit careful with DIY agreements of this nature because what you are doing is creating a right of pre-emption - a right for each other to buy which is fine but you need to ensure you have adequately defined the price at which the property must be sold. I would be tempted to include reference to "market price" in the agreement sufficiently to ensure that your respective estates does not have to sell the property at less than market value.

Joshua :

If the document was witnessed then providing its terms are clear it would likely stand as a right of preemption which the survivor of you could seek to exercise.

Joshua :

Does the above answer all your questions or is there anything I can clarify or help with any further?

Joshua :

If you have no further questions for now I should be very grateful if you would kindly take a moment to rate my service to you today. Your feedback is important to me. If there is anything else I can help with though please reply back to me though.

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