Help, I have never come across a scenario like this before and am struggling to advise client.

Client has been getting help with mortgage via a mortgage protection policy. However this policy requires her to sign on as a job seeker - she is no longer able to do this due to her caring responsibilities for her disabled child. Has now claimed IS and CA.

Insurance company say that as a result she is no longer due ongoing payments towards her mortgage. However due to a clause in the insurance policy she is instead entitled to a lump sum payment of £13,000. She wants to use this money to pay off part of her mortgage.

My question is whether this lump sum will simply be seen as capital in the normal way or whether there is any risk that it can somehow be deemed to be advance payment towards her ongoing mortgage liability and thus used by the DWP to justify not meeting her mortgage interest payments via IS.

Has anyone have any ideas how this lump sum will be treated?

Does the insurance policy or the letters about it specify whether the money has to be used towards paying off her mortgage or is she genuinely free to use it as she wishes? The latter seems unlikely, but it will depend on the exact wording.

We provide advice via a national Helpline which means I have not been able to see the paperwork. Suggested that she try and see an adviser locally to get someone to interpret the policy but she says no such service is available. The client appears to believe that there are no restrictions on what she can use the money for.

Generally a payout from an insurance policy is treated as capital.
Even if there were restrictions on what it could be used for it is still capital until disposed of for the intended purpose.