2016 - 2017
Foreign currency account
Mr and Mrs X took out home loan insurance in April 2010. In September of that year, their house was damaged in an earthquake and the Earthquake Commission gave them $115,000. This was applied to their bank loan, reducing it to $80,000.
After another earthquake the following year, their property was “red-zoned”, that is, ruled uninhabitable. They accepted a government payout and bought a new property, borrowing more from the bank to help fund the purchase. Their home loan insurance, was transferred to a new total loan of $200,000. However, only the $80,000 portion of the loan was covered by the insurance policy. The bank wrote to the couple advising that they would need to pay additional premiums and complete an acceptance form if they wanted cover for the new $120,000 portion of the loan. The form to accept the further cover was not returned and additional premiums were not paid.
Five years later, Mr X died. At the time of his death, $65,000 of the original $80,000 loan remained unpaid. The bank accepted Mrs X’s claim under the policy and reduced their lending by $65,000.
Mrs X noted their policy provided for full repayment of the balance of the loan and believed the bank should have paid off the entire balance of the loan, which was $160,000 at the time of Mr X’s death.
We thought that bank had paid out the correct amount under the policy. Only the $80,000 portion of the lending was insured and the balance of that portion at the time of the claim was $65,000. Mr and Mrs X had not returned the acceptance form to increase the amount of cover and had not paid the additional premiums and so the new portion of the loan was not covered. However, the bank recognised Mrs X was in a difficult situation and that her circumstances were particular following the earthquakes. It offered to make a goodwill payment of $15,000. We recommended Mrs X accept the bank’s offer, which she did.