Life insurance and critical illnes cover.

Nun500

Hi,

I am new to this forum having logged on once before many years back. I am not even sure I am posting this in the correct area.
Within the last few months three of my colleagues have been diagnosed with cancer. Once has sadly since passed away, the other is in remission (hooray) and today MC was given 6 months to live. I am embarrassed to admit that as parents of two lovley children, we have no policies of any sort, not even a will.
I know this may appear incredibly irresponsible but I have for my own sense of anxiety not taken any policies as I lost my mum as a young child a month after she took out an insurance policy and it always stuck with me and scared me. (Silly I know) Anyway, hearing the news today of my colleague really made me wake up to reality! Just over a month ago I visited a financial advisor as I had wanted to understand what I should put in place by way of protecting my family in the event that I should get ill or worse. I walked out feeling overwhelmed by all the suggestions and to be honest did not take it any further, due to being busy and not making the time and partly because I was unsure if all he had suggested was right. I do not have parents to turn to nor a mentor and feel unsure of what it is I should have in place. I keep reading about how critical illness is a waste of money and is so expensive and very often people are not paid out when they most need it.
The financial advisor whom I saw recommended that the first thing I should do is get a Will. He also mentioned I should get critical illness cover and life insurance and that we should put one of these in a Trust. I am however unsure of how much cover I should get, be it a single cover or joint cover, enough to cover us until our children leave home or until pensionable age? I feel embarrassed that I do not know these things and I really want to provide for my family and feel secure that my husband and I are doing the best for our future and our children’s future. We are both contractors and are not in permanent employment and as such have not got a pension started either. I did have a pension with an investment bank I worked with but there is no more than 8000 pounds in that which I can transfer to another pension at any time, but I think I can only do this if I go into permanent employment. I would like to trust the advisor I saw but am unsure if he is simply trying to sell me lots of products which I do not really need and from which he may make commission on. We are currently working at paying our debts and basically have been quoted that the broker can arrange a Will for us and the insurances for a cost of 800 pounds and that we should pay about 200 per month thereafter for critical illness and then on top of that life insurance.
Apologies if this is long winded. Neither my husband nor I are particularly financially savvy and I have taken it upon myself to get this all sorted for peace of mind and to learn!!! I would be really grateful if anyone could advise/suggest what as individuals and as parents we really ought to put in place in terms of:
Will – must this be done by a lawyer?
Life Insurance –how much cover/single or joint and with whom?
Critical Illness – necessary, worth it?
Income protection?- How much?
Pension – investing or perhaps buying a small property?
Savings for our children

Thank you in advance for any help.

ACG

There was a lot there..paragraphs would also help in any future posts :P

Anyway, you have listed the most common types of policy there so thats a good start.
£800 could be a lot or a little or just right...without knowing what he has recommended and your info its difficult to say.

Life Insurance - pays out a lump sum on your death.
Critical Illness - pays out a lump sum on your diagnoses of a critical illness (usually around 35 of them including cancer, heart attack etc).
Income Protection - pays out a monthly amount (maximum of 65%ish of your monthly wage - for you this would be based on your last years p60).

Im not suggesting you take out any of these policies, however my personal opinion is that for the majority of people Income Protection should be the first thing you look at. Its not limited to critical illnesses, it pays out if you are unable to work for health issues. Its not an alternative to critical illness, they do dfferent things but a lot of advisors seem to think its one or the other.

Also critical illness pays out on approx 90% of claims...so wherever you read it doesnt pay out is wrong. Have a look on google for critical illness claim statistics and you will see the life offices stats on crtical illness.

If you dont trust the advisor...go and see another, and another until you find one you feel is doing the best in your eyes.

Hopefully ive not bamboozled you with too much info and havnt created more questions than answers but you will get a lot of good answers on this forum.

kingstreet

Establish the issues which are most important to you and decide on these "needs" in priority order.

Establish a budget for these needs, working out which ones you can afford to address now and which of the less important ones you can deal with later.

Talk to an Independent Financial Adviser and have a plan drawn up which allows you to deal with your priority needs now and the less urgent ones later, and apply your budget to the best cover you can get.

Don't be put off by complexities and feeling you can't afford all the cover. It's better to have some cover than none at all...

Nun500

At ACG and Kingstreet, thank you for advice, some good points which definitely did not confuse me further but instead gave me clarification on what I should do. Thank you!

magpiecottage

kingstreet wrote: »

Establish the issues which are most important to you and decide on these "needs" in priority order.

First priority is that Will - so the adviser is on the right lines.

Protecting the roof over your head next. If and when you get a mortgage then mortgage protection assurance (which goes down roughly in line with the loan) is wise. It can be a joint policy because it will only be necessary to pay off the mortgage once even if both of you were to die.

Then Family Income Benefit - pays out an income for the balance of the term if you die. This can be set up to when the children are expected to become financially independent (that will be 50 years then!). Again the potential payout falls over time. This means it is relatively cheap (assuming your health is reasonable). You might want one of these each. Put it into trust because that way a payout can be made without waiting to get probate. It might also save a bit of Inheritance Tax.

Then move on to Permanent Health Insurance. This is not as "sexy" as critical illness because instead of paying a big lump sum it pays a steady income until you are well enough to work again. The advantage, though, is that you do not need to be "lucky" enough to get the right illness for it to pay out. There has been an ongoing debate about this for many years but I favour PHI over CI simply because the cover is wider. It might not pay off the mortgage for you in one hit but at least it ensures you have funds to keep up the payments.

Because of this, if I had the choice I would prefer to defend a complaint that PHI had been chosen in preference to CI than that CI had been chosen in preference to PHI.

As Kingstreet says, though, you need an Independent Financial Adviser. They can help you stretch your budget as far as possible.

But do not worry if you cannot do everything. Life is like that and the inadequate is normally better than nothing at all.

Nun500

Hi Magpie,

Thank you for your informative mail. I had a few questions and wondered if you would be kind enough to answer. With regards to a Will is this somehting that must be drawn up by a lawyer or can I simply go to WH Smith and buy one from there and fill this out? I don't own a house and my only assets really are my car and jewllery and my furniture.

One last thing, the advisor I saw was more of a morgage advisor as we were looking at what our chances were of trying to secure a mortgage. Is there an organisation where I can find a financial advisor and what should I expect from them?

My husband and I do earn reasonalbly good salaries but we still seem to be living from month to month and I certainly think we could be making much better choices.

Many thanks.

Nun500

To Magpiecottage,

I forgot to ask, with Permanent health inusrance, you mentioned them paying you out monthly until you are well enough to return to work, but what happens in the case when you are un able to return to work, do the monthly payments continue for a limited period?

Kind regards.

ACG

You can go to WH Smith yes...but your talking about your current and future estate, do you really want to trust doing it yourself?

You dont know what will happen in the future, life becomes messy as you get older - the baggage you pick up along the way. Wills can be contested if not done correctly and what you want/expect to take place on your death may not happen.

Our company refers all will sales on to a solicitor we have, theyre not as expensive as you may think for a basic will.

There isnt an organisation as such where you can find a financial advisor, unbiased.co.uk, freeindex.co.uk, google etc can all help you locate some in your area.
With regards to what they offer, some will specialise in certaina areas, others will be more general.

Are you looking for anything in paticular?

Just seen your PHI question...PHI pays out until your chosen end date of the policy (usually falls in line with your retirement age but not always), This link shows Liverpool Victoria pays their PHI claims out for an average of 7 years.

Nun500

At ACG, my apologies I have been too busy at work and travelling and have not made the time to respond. Presently, I am trawling the Money Saving Expert website for advice on clearing our debt and lowering credit card interest in ordeer to tackle the debt side of things. WE are paying nearlly 600 pounds to Credit cards a month and in total it is probably paying a total sum of 100pounds of capital in total!!!! Our credit cards are all on 26%at the moment!!!! I am hoping a IFA can help advise what is best to do hear!

To paint a picture… my husband andI no longer have any savings, other than the 3600 pounds deposit our landlord holds. We are both currently in contract roles (no pension) and are desperate to clear our debt and buy a house/flat and secure and set up a financial plan for both our future and the children’s future.

I don’t mind seeking advice from an insurance broker however, I do not want to be sold all sorts of products which benefit the broker by way of commission rather than our future and to be honest I am not sure I will be confident in making a decision on the right product. I have recently been advised by a mortgage advisor to take out Individual Protection (Life assurance) It is a joint policy with my husband and it is for 18 years. But the policy is for a payout less than my current salary so I am confused by this.


You asked the question in an earlier post If I am looking for something in particular from a IFA. Well the below outlines what I am hoping to get advice on over and above how to best and quickly to pay off our debt.


· Setting up a Will
· What sort of Life Insurance we should have: Should I take out a policy that is paid out within a fixed term or simply a set amount? Also are most policies transferable should we relocate to another country? How long should I take this policy out for, until the children have completed formal education or until we are of pensionable age, or should the payout aim to pay off any outstanding debts as well as provide any of our dependents with a reasonable standard of living?
· Should I get an income protection policy or a good critical or serious illness policy? Also would they advise writing either of these policies in a Trust to avoid Inheritance Tax?
· How can we best invest some money to make money in order to try and save for a deposit in a shorter period of time. Should we try to buy a small 1 bedroom for example to rent out and hold onto for the sake of a pension and within a few years try to buy another or should we look to buy the family home as this is more long term? ( I guess the answer here is simply what we can afford)
· Would the IFA recommend for the sake of trying to obtain a mortgage that either of us take a permanent job in order to appear more favourable to lenders?
· What sort of policies or savings contributions can we make for the kids to ensure their education can be paid for and that perhaps we will be able to help them one day secure buying a property?
· I want to ensure that should anything ever happen to either of us that we have protection for losing one income and more importantly protection for the children.
· As a contractor what individual contributions we should be making to a pension plan and how we go about this?

Sorry I know this post is a long one. I am overwhelmed by how much needs to be done and I wish I had an accountant friend who could put the debt side of things into a spreadsheet so that I can visually see how much money we are waisting to interest and what we should do. Not to mention how to go about organising the various insurances and policies we need to put in place. I am determined to put all that is needed in place, instead of putting my head in the sand!!
Thanks in advance for any guidence.

ACG

There are a lot of questions in that post and a lot of information.

I understand you not wanting to be sold all sort just to help an advisors bank balance - i think to some extent if i wasnt in the industry i would be the same.

The problem you have is that some of those products would be quite important whilst others would be lower down the list and sometimes its a case of maybe mixing and matching to fit into a budget. My personal opinion (although this may not be the case for you) is that Income Protection is vital - of you lose your income due to health then you cant afford the mortgage, bills, or any other insurance.

I think you need to sit down with an advisor, if you dont trust them, cant relate to them or your not 100% find another. There is no shortage of advisors out there - see a few until you find one your happy with.

From my experience, advisors who dont even discuss income protection generally seem to be the ones with either lack of product knowledge or after the easy sale (ie £100k mortgage = £100k life cover...easy to explain, easy to sell....not necessarily whats best for the client).

With the debt in place (and possibly lack of deposit?), its probably unlikely a broker will be able to do much. However they might spend some time with you discussing everything and giving you some things to aim for in the hope you will go back to them once it gets closer to the time.

As for the employment - you can be self employed or on contract to obtain a mortgage providing you meet each lenders criteria.

I honestly think you need to sit down with someone as there is a lot to discuss on that post and to reply to each section would take a long time.

Also we cant advise on these forums without having first completed a factfind, we can only give general pointers and a bit of direction based on your post.

EvieSaver

I'm not a financial advisor but the way I decided was like this:

If I was diagnosed with cancer we would need (I'm a stay at home mom) money to cover child care costs, spare cash to cheer me up and cover other worries.

If my husband was diagnosed with cancer we'd need the same as above (we checked - his employment has good sickness payment terms so no worries for us about salary).

From this we decided on £30,000 critical illness cover - covering for 25 years (from age 30) cost us £10 ish per month.

Then we asked - if I died, or my husband died what would we need - we decided that we would want the mortgage paid off. We decided to have individual life insurance policies to cover the mortgage, we didn't choose a reducing payout plan as the monthly charge to us was only a few pence different. We have insurance for £240,000 again for 25 years, both plans are set up together (saves us £3 per month) costs a total of £18 per month. We decided on 2 payouts as if we both die we wanted the kids to have a home paid off and some cash to see them through to adult hood.

We have done our own will as our needs for this were simple, we're a married couple with kids. Money to go to each other, then to the kids. We were able to copy a previous will we had draw up by a solicitor and just added our second child. Our original will cost us £50.

We haven't got income protection as my husband's job is quite stable and we have a large amount of our mortgage overpaid which we could get back if needed. The income protection insurance we looked into was very expensive as decided it wasn't for us.

You need think about the above things for your circumstances. Think, if X happened I'd want X etc. Then even if you don't know exactly what is the right insurance for you at least you will know what outcome you want which will help an advisor recommend the correct policy. If you go direct to an insurer then their advice is free, you could go to a couple to compare prices, look on the comparison websites or phone.

I've told you what we've done as an example only. Everyone's needs are different. Your first step is to decide what you want.

Good luck.