What do I need to look for in a life insurance policy?

MarkyLou

We are currently FTB, awaiting a mortgage decision on new house.

Our Mortgage Advisor wanted to sell us life and critical illness cover but I declined saying that we would arrange this ourselves.

I've spent the last few hours getting quotes on the internet and the difference in prices is completely baffling me! For the same amount of level cover, I've got quotes ranging from £19 a month to over £100 a month!

So, what am I missing? Or what do I need to check for on the cheaper policies?

We both have Death In Service benefits through work, and I also have Life Assurance through work. But MA told us that these didnt count as they take so long to pay out?

Can anyone advise please?

dazzadub

What's paid off
How much the pay out

And who gets

I'd imagine there most important

Cazza

It might be a good idea to go back to the MA to ask some of the questions, Life & CIC need to be right for you and if you are struggling after a few hours then a bit of specialist advice might be just what you need. Ask the MA for some quotes and then use them as a comparable to start searching again. As with many things, there are cheap and expensive options but be wary of just picking the cheapest - them more expensive Ciritcal Illness policies are often pricier because they cover a wider range of conditions and a more comprehensive level of cover.

Death in Service benefits should be used with care for mortgage protection purposes as these are likely to cease if you change employer. You are entering into a long term commitment (25-30 years) and the MA needs to be certain their advice is appropriate for that commitment.

kingstreet

Q1

Is the adviser whole market/independent?

Working from a panel of insurers?

Tied to one insurer?

You need to be able to access the whole range of providers to get the best combination of price and cover.

Q2

How long would your employer pay you in the event of illness? How much would they pay? How do you pay your mortgage and bills if your income drops, then stops altogether?

Being unable to pay while alive, is worse than what happens if you die.

Q3

You take out critical illness cover. You are ill and will never work again. It is not one of the illnesses on the list, so no payout. How do you pay the mortgage and the bills?

Find an independent adviser and find out about income protection cover, or permanent health insurance as it is better known.

There is a much greater chance of you being off sick for a long time than there is you dying before you reach 65. The average PHI claim period is over 7 years.

MarkyLou

Thanks for your responses.

The MA are whole of market mortgage advisors but not sure about insurance - I'll ask the question.

My employer would pay 6 months full pay and 6 months half pay. Husband does not get sick pay at all.

The MA also did us a quote for Income Protection Cover but this would only cover me as husband's job (warehouse operative) is apparently on the list of jobs which they won't cover?! She didn't know why this was :think:

The income protection premium (just for me) was quoted at £66 a month, then critical illness with life cover quoted at just over £300 a month for both of us. To me, this seems extortionate? Nearly £400 a month and income protection is only for 1 person? She said those were the cheapest premiums that she could give us.

kingstreet

It sounds like you have a tied adviser. That's the only reason they can't get cover for a warehouseman. It probably means the life cover is more expensive to pay their higher commission rate too.

Income protection should always be taken on the best definition, "own occupation," as it is the best chance of a payout. Some providers will only cover riskier occupations on a "work tasks" basis which would see no payout if they could hold a pen, keyboard etc. or won't cover them at all.

Specialist providers available to a whole market adviser offer "own occupation" cover to every applicant, regardless of their job and can offer the same rates to smokers as they do to non-smokers.

In your case, you can take income protection on a twelve month deferred period to reduce the cost as much as possible and you only need to cover 50% to 60% of your income, as the benefit is free of Income Tax and NI.

Your husband should keep an emergency fund of three months net income, perhaps more, then he can take income protection with a three month deferred period to lower the cost. Again, if he could save six months' net salary, the premium could again be reduced with a deferred period which matches this.

Add joint decreasing life cover to cover the mortgage and you would be kicking off with a better level of protection, probably at a lower cost.

For example, for a male aged 35, own occupation cover of £1,000 per month, payable until age 65 after a three month waiting period would have an initial monthly premium of £24.60.

For a female aged 35, own occupation cover of £1,000 per month to age 65 after a twelve month waiting period, the initial monthly premium would be £18.40.

Joint decreasing life cover of £100k over 25 years should cost around £10 per month.

That's a decent level of protection for an average couple for £53 per month.

ACG

Speak to your advisor, its not just a case of thats the premium take it or leave it. If you only want to spend £xx then tell them to work to a budget.

Protection is something the advisors could write essays about and what to look for etc. It all depends on what you want.

As for your occupation, its seen as high risk - you should be able to get cover but it wont be as cheap as an administrator for instance.

A broker isnt a lot more expensive than doing it yourself - we are more experience but your receiving advice, saving yourself however many hours AND having it done properly.

MarkyLou

Thanks kingstreet, those prices look much better!

Would I need to go through a broker to get those kind of prices or could I do it myself?

kingstreet

Seek advice from an IFA. The specialists who offer the "own occupation" cover tend to deal only through intermediaries and don't have household names.

If you go to the big-names, you'll either not be offered cover, or it will be "work tasks," or similar.