Level term v Decreasing term life & CI assurance

BristolDude1974abc

I'm just in the process of buying my first home (jeez that's stressfull & I haven't even signed up for a mortgage yet! :eek: ).
Anyway, I've spoken to a local IFA and he recommended a level term life & CI assurance policy.

Another (estate agent based) advisor (who I wouldn't use for insurances because they're tied) raised the point that as I'm buying a normal repayment mortgage I probably wouldn't need a level term policy & a decreasing term would be better.

The IFA said that level term would be more cost effective in the long term as when I move to another house in a few years time, I would only have to pay an increased premium on the policy for the difference between the old and new cover required (i.e. current mortgage & new mortgage), whereas with a decreasing term policy, I would have to pay the difference between the value remaining on the policy at the time I move (e.g. 10 years from now) and the cover required for the new mortgage.

I am 31, single, non smoker & have no dependants.
(I know in my current situation that I don't really need life assurance at the moment but from the quotes I have had, there seems very little difference between CI only & life+CI).

(The policy he is recommending is a guarenteed policy not reviewable)

dunstonh

Either decreasing term or level term as appropriate. Strictly speaking decreasing term would be best but sometimes the premium difference is minimal and can help provide added family protection over time (as mortgage drops, the extra life cover goes to the family). Its one of those cases where its more down to opinion and pricing at the time.

As you are single with no dependents, you do have to ask why either have recommended term assurance (as you have). Perhaps a PHI policy instead of life and CI would be more appropriate to your circumstances.

tonydee

Just to add to this. I took out life insurance when we 1st bought 9 years ago. Rather naively I stuck with the bank (Abbey) and have been paying £18 p/m with a decreasing term.

Having recently speaking with a guy at L&C, I have been quoted £10p/m for a level term fixed amount.

It pays to shop around !

dunstonh

Having recently speaking with a guy at L&C, I have been quoted £10p/m for a level term fixed amount.

It pays to shop around !

It pays to get advice too. You almost certainly should have gone with pension term assurance rather than level term assurance if it is on single life basis.

BristolDude1974abc

dunstonh wrote:

Either decreasing term or level term as appropriate. Strictly speaking decreasing term would be best but sometimes the premium difference is minimal and can help provide added family protection over time (as mortgage drops, the extra life cover goes to the family). Its one of those cases where its more down to opinion and pricing at the time.

As you are single with no dependents, you do have to ask why either have recommended term assurance (as you have). Perhaps a PHI policy instead of life and CI would be more appropriate to your circumstances.

Thanks for the advice - I'm going to speak to the advisor more this afternoon but I did read this part on this site:

Get a quote for the same value Level Term Assurance, which pays a fixed rather than decreasing sum. If the difference is small, plump for a level term policy instead, as it means if you trade up to a bigger house in the future you may not need much additional insurance. It also means, as well as paying the house off, there may be extra money for dependents.

So I'll ask for the difference between the two types of policy.

BristolDude1974abc

BristolDude1974abc wrote:

So I'll ask for the difference between the two types of policy.

The difference was around £9/month between level term and reducing term cover (for guarenteed monthly payments) - not sure if that counts as a small enough to make it worthwhile in the long term (given that this is my first home and I'm likely to move several times in the future).

MortgageMamma

As dunstonH states, you really do not need life assurance if you are singl;e with no dependants but I think pension term assurance would be best for you because it is so cost effective (you pay your premium net of basic rate tax, if you are a higher rate taxpayers you can claim an additional 22% on your return).

I personally would see Permanent Health Insurance (will pay upo to 75% of your salary in the event of sickness or accident) as a higher priority. the younger you are when you take this the cheaper the premiums are generally. If you made a claim and become permanently unable to work it could pay you an income until retirement. Another option would be mortgage payment protection which could pay your mortgage for up to two years in the event of accident sickness or involuntary redundancy. Protecting your mortgage in the event of ill health or redundancy is even more important for somebody who is soley responsible for the mortgage payments. you would have to wait up to 39 weeks for any state assistance and even then it is minimal.

BristolDude1974abc

Thanks for all your advice so far.

OK, this is what my local IFA recommended:
- Level term guaranteed premium life & critical illness assurance - just under £30/month
- Income protection insurance with protected premiums, deferred for 13 weeks - again, just under £30/month

I'm 32 with no dependants.
My pension death in benefits policy pays out enough to cover my current mortgage but the advisor said that the industry normally ignores that because jobs & mortgates change & may not cover the amount required any more.
I get 8 weeks full & 8 weeks half sick pay.

The advisor said that the difference between CI cover only and life+CI is minimal so it would be better to start paying a guaranteed premium as early as possible as the premiums would be higher if I waited & took out a life policy in few more years.

The difference between level term & decreasing term insurance was around £9/month but he said that this would still be worth paying otherwise I would have to pay more to adjust the policy when I moved house next.

He didn't recommend pension term assurance because it couldn't include CI assurance.
I didn't ask about Permanent Health Insurance.

Money isn't that tight for me at the moment so I'd prefer policies which set me up for the long term.

I know it's probably difficult to tell without more information & many of you have already recommended different policues but do you think that what I've been recommended is OK (does it make sense looking in the long term?) or do you really think I should be looking for other policies like the types that have been recommended already.

dunstonh

Income protection = PHI. So he has covered that.

Life cover is a surplus requirement and I wouldnt go with it but that appears to be more a reaction to a choice to buy now whilst you are cheap than what is really financially required.

Death in service does tend to get ignored because of the reasons mentioned which are totally valid.

So, apart from the life cover, I would agree.

MortgageMamma

Again I would agree with the permanent health insurance, but i can't understand why he is recommending you level/decreasing term assurance when

1. Technically speaking you don't really need it

2. Pension term assurance would be far better value for money, both now and in the long term subject to the tax credit on premiums remaining in place
but you cannot have Critical Illness cover built into a PTA plan

3. Critical Illness Cover. Do you really think you NEED the mortgage to be PAID OFF if you were critically ill or would you be able to exist on the Permanent Health Insurance income? Personally, if I was confident I had a good Perm Health Ins policy I would be looking for private medical insurance rather than CI as I'd want to be treated much quicker than on NHS if I was diagnosed with/suspected of having a serious illness.

Thats just my own opinon and what I would think about for MY client, every advisor differs on these things.