What type of Life insurance

nitinpatil

Hi
I just bought Property and I have taken mortgage of 128k. Many friends are sugesting me to take down the life insurance with critical illness.

I understand that it will help to repay my mortgage in case of death or major illness.

Can any one suggest what sort of Insurance should I take? where will I get best deal? are there any insurace companies which gives me back some amount out of my monthly payment at the end of policy if I dont claim?


Thanks in advance

Pats

payless

Generally polices with cashback at end are more expensive.

dunstonh

If a capital repayment mortgage, you need a decreasing term assurance (sometimes referred to as a mortgage protection plan when linked with a mortgage).

Whether you need one depends on you presonal circumstances.

If you have no-one that would be financially worse off in the event of your death, you do not need life assurance. If there is someone who is worse off (such as a wife/partner) then you do need it.

Critical illness cover is available as a bolt on to life cover or as a standalone plan.

As payless says, cashback plans are usually more expensive. They are also known as endowment plans and hopefully i dont have to tell you that endowment plans are not considered a good thing anymore. If you want to save, you use a savings plan. If you want assurance, you use a term assurance. You dont mix the two things up and compromise benefits.

Ideally, you should purchase your life assurance through an IFA (independent financial advisor) as they have the ablity to shop round from the market place.

lisyloo

If you have no-one that would be financially worse off in the event of your death, you do not need life assurance.

Well this is arguable (as I'm sure you know as an IFA

The downside of not having any insurance (and assuming that the sale of the house will cover the mortgage) is that houses are not illiquid like shares.

i.e. you can't walk into the bank and just sell it there are then.

Sometimes it can take months, even years to sell a house and sometimes this can be through no fault of your own e.g. unluckly with a few sales falling through.

The downside of not having life insurance is that your beneficiaries will have to pay the mortgage whist waiting for a house sale.
This may or may not cause them financial difficultly, but either way someone will need to sort out the mess.

If your beneficiaries have plenty of money and don't mind then it's not a problem, but do bear in mind that you could be leaving a mess behind for someone.

dunstonh

Well this is arguable (as I'm sure you know as an IFA  :)

The downside of not having any insurance (and assuming that the sale of the house will cover the mortgage) is that houses are not illiquid like shares.

i.e. you can't walk into the bank and just sell it there are then.

Sometimes it can take months, even years to sell a house and sometimes this can be through no fault of your own e.g. unluckly with a few sales falling through.

The downside of not having life insurance is that your beneficiaries will have to pay the mortgage whist waiting for a house sale.
This may or may not cause them financial difficultly, but either way someone will need to sort out the mess.

If your beneficiaries have plenty of money and don't mind then it's not a problem, but do bear in mind that you could be leaving a mess behind for someone.

At the end of the day, the loan is covered by the sale of the house and the value of the estate, if there is a shortfall. If there is still not enough money, they dont come after any one else and the debt is written off as they cant pass it onto anyone else.

If it takes months, years and if the bank cant get its money back, why should you care. you would be dead.

You may well have a personal pension fund that is worth many thousands, that would be paid out as a lump sum in the event of your death. You could consider that death benefit.

lisyloo

If there is still not enough money, they dont come after any one else and the debt is written off as they cant pass it onto anyone else.  

Yes I understand that and if you are in net debt then there is no obligation on anyone to take on the estate.

However if you have net assets (savings, payout from pensions etc, equity in the house) the I think 99% of the population would want their family to have it and this is what would happen in the majority of cases.

If it takes months, years and if the bank cant get its money back, why should you care.  you would be dead.

In that situation (the net debt one) then there is no reason to care.
However if there are other assets that you want to pass onto your family then you should care, because again the vast majority of people don't want to leave their family with a mess to clear up.
If the family is taking on the estate then the bank will want the mortgage paid which is fine if the family have the cash available to put up front while the house in being sold.
Life insurance would on the other hand pay out quite quickly (normally no disputes about whether you're dead) and solve the issue.

Most people do care about their family enough not to want to leave them in a bad situation after their death.

You may well have a personal pension fund that is worth many thousands, that would be paid out as a lump sum in the event of your death.  You could consider that death benefit.

I agree - and wouldn't you want your family to get the benefit of that?

That is something to take into account.

I think there may be issues with timing (I was always led to believe that life insurance paid out quickly) and also there may be issues with getting you hands on the money before probate.
You will know more about this than I do.

I am not saying that life insurance is essential, just that it's something worth considering if it would cause difficulties.

I would say that if you are in net debt OR have family with cash then it's proabably not worth worrying about.

However if you have assets (pensions, savings, equity etc) that you would like to pass on and the beneficiaries are not cash rich then it's worth considering the consequences.

Do you not agree that it's worth considering if you have assets to pass on and care about your beneficiaries (even if no dependents) ??

dunstonh

However if you have net assets (savings, payout from pensions etc, equity in the house) the I think 99% of the population would want their family to have it and this is what would happen in the majority of cases.

So therefore you are saying that you feel someone would be worse off in the event of your death in this situation. In which case life cover is appropriate as you feel it is. Others may not give two hoots and dont want to pay a premium every month to let someone else benefit as an inheritance.

Do you not agree that it's worth considering if you have assets to pass on and care about your beneficiaries (even if no dependents) ??

You are talking about a desire and not a need. There is no financial need or reason although it may be desirable if you have the spare cash and it would make you happy to do it

With no financial dependents, the beneficiares would be the parents. Most parents are not looking or would want an inheritance from their children.

lisyloo

So therefore you are saying that you feel someone would be worse off in the event of your death in this situation.  

Yes correct, because they have to pay mortgage payments that they weren't expecting (and they moght not have the money and the estate might be tied up in probate etc.).

Others may not give two hoots and dont want to pay a premium every month to let someone else benefit as an inheritance.

Again we are in agreement.
If someone doesn't care about their family then there isn't a problem leving a mess for them to clear up.

The reason I'm pointing this out is because I believe most people do care about their parents and don't realise this situation - they just think the house will pay off the debt without realising the difficiulties of the practicalities.

As always the solution will depend on the persons attitude and I agree - if you couldn't care less then you don't need it.

With no financial dependents, the beneficiares would be the parents.  Most parents are not looking or would want an inheritance from their children.    

I agree, but that doesn't mean you want to leave them with a mess to sort out.

I think we are generally in agreement.

dunstonh

Yes correct, because they have to pay mortgage payments that they weren't expecting (and they moght not have the money and the estate might be tied up in probate etc.).

No-one has to pay the mortgage. The lender suspends the monthly payment.

lisyloo

The lender suspends the monthly payment.

That was not my understanding.
However I bow to your superior knowledge.

Do they all suspend payment or does it depend on the lenders policy.

If they are all prepared to suspend payment then I can't really see much of an issue.

dunstonh

Yes, they all suspend payments when the mortgage holder dies.

In the case of joint mortgages the surviving partner has to continue payments. Which is why you would normally need life cover on joint mortgages.

In sole mortgages for a single person living alone, the payment is suspended because they have no legal claim to have anyone else pay it.

For sole mortgages for a person living with someone else, the payment is suspended because they have no legal claim to have anyone else pay it. An eviction process would be started on the surviving person if they were unable to buy the property (which in turn clears the debt from the estate). Therefore life cover is needed.