Mortgage Life Assurance, just had a baby should I change?

buttonsandzips

We currently have cover from Friends Provident for myself and partner. This costs us £40 a month including critical illness and is a decreasing type policy.

We now have a baby and so I am going over the finances etc and was thinking maybe I should change this cover for a level term assuarnce so that if one of us was to die the mortgage would be covered plus some extra which would be much needed.

£40 quid seems expensive too and I am wondering if the critical illness is a waste of money and perhaps I should just save the cash instead!

Any thoughts or advice? I am not sure how easy it is to cancel my existing mortgage cover too.

Thanks

lisyloo

We now have a baby and so I am going over the finances etc and was thinking maybe I should change this cover

It's likely you'll need a lot more cover.
If one of you dies then the other will either have to work or do full time child care, one person cannot do both.
So you need an income for at least a few years.
You need to work out what you need either to pay for child care or for income until the survivor could return to work.

£40 quid seems expensive too and I am wondering if the critical illness is a waste of money and perhaps I should just save the cash instead!

So what will you do if one of you is long term sick and exceeds sick pay? What about child care?
You need to think about how you would cover these things.
It's possibly you have parents who would step in or work benefits, but you need to think through the scenarios and how it would affect you, both in terms of lost income and lost child care.
It possible you don't need it (if you have parents to step in for example), but it's also possible your cover is inssuficient.
I'm afraid it doesn't sound expensive to me at all, especailly for a couple.

I am not sure how easy it is to cancel my existing mortgage cover too.

Very easy, you just phone them up and cancel.
Are you in the early years? Did you use a financial advisor or broker.
Best to check their terms of business to make sure they won't charge you for lost commission. If you don't have the letter ask them for a copy or ring them and ask them if there is a "clawback" in place.
It's best to have other cover in place before you cancel.

An independent financial advisor would be the best person to advise you.

dunstonh

We now have a baby and so I am going over the finances etc and was thinking maybe I should change this cover for a level term assuarnce so that if one of us was to die the mortgage would be covered plus some extra which would be much needed.

No. Right idea but wrong implementation.

You had a need for cover for debts previously. You still have that now. However, you have a second, different need for family protection now. So, you need an additional lever term assurance or family income benefit. Not one in place of the decreasing term assurance for the mortgage.

£40 quid seems expensive too and I am wondering if the critical illness is a waste of money and perhaps I should just save the cash instead!

£40 doesnt seem expensive as an average premium. CI payouts are exceeding life at the moment so you would be reducing your chances of a claim. CI payouts are also occurring much younger than historically. Its increasingly likely to see those in their 30s suffer a claimable event.

Insurance is always a waste of money if you dont suffer a claimable event. However, if you do suffer a claimable event it will turn into the best money you ever spent.

buttonsandzips

Thank you both for the comprehensive replies. So I guess my options are to go to current insurer and ask them to change it to pay out extra so there is some cash available for whoever would be left holding the baby or take out a second policy purely for this need?

dunstonh

So I guess my options are to go to current insurer and ask them to change it to pay out extra so there is some cash available for whoever would be left holding the baby or take out a second policy purely for this need?

You leave the current one alone. It is covering the mortgage need and set for the amount of the mortgage and the required term. You now treat this as a second need requiring a second policy (or more if you have split requirements - i.e. one larger income earner than the other).

buttonsandzips

I have discovered that if I die in service my wife would receive £60K. If she died in service I would receive £100K. The mortgage would also be cleared so even for the survivor plus child monthly outgoings would be low. We have both sets of parents who could help out with childcare so I think in terms of cover for death we are ok but perhaps some extra would help.

Long term sick could be an issue but we are both fit, healthy people so I am prepared to risk that one.

Also our existing policy has my wife on "Smokers terms". She hasn't smoked now for two years and will not smoke again. Is it possible to get the premium reduced based on this? If I do a new quote online for the same cover we currently have but select non smoker for both of us it comes back at £25 a month.

ACG

Life and CIC is good. I dont think you should ever think of Critical illness as a waste of money - when you come accross people who claim on it you see the benefits.

FPs critical illness is good in that it will also cover you and upto 3 children - most other companies offer to cover only 1 or 2 children.

My personal choice is to take life cover and then i prefer income protection or PHI over critical illness but thats jsut my preference. You need to think about what it beneficial to you and your family really.

lisyloo

but we are both fit, healthy people so I am prepared to risk that one.

Being fit and healthy does not mean you are at less risk of a car accident. None of us know when we will get ill or have an accident.
Having parents who could help with child care is a real big bonus though.

My personal choice is to take life cover and then i prefer income protection or PHI over critical illness but thats jsut my preference. You need to think about what it beneficial to you and your family really.

I also prefer PHI to CIC.
Ideally you'd have both but it's prohiobitively expensive to have everything.
PHI gives you an income until retirement, whereas CIC gives a lump sum on certain illnesses. There's two issuies with that. The lump sum would be insufficient for an income for very long and it's only certain illnesses albeit the main/most likely ones.
I'd prefer to have my income protected until pension kicks in (which can actually be decades).

My employer provides me with PHI, so I would definitely suggest checking out what they offer (don't confuse with PMI for medical treatment). Also your pension may provide benefits such as a lump sum and/or pension for dependents.

It really does depend on indvidual circumstances.
Yours are different because you have parents who could (hopefully) help out, although no guarantee they would be alive and well at the time.

I would say it's good to consult an IFA even if you don't take all their recommendations.
But also I think you are right that you do have to compromise on cover, because few of us can afford to get everything.