mortgage/life insurance

scotty1972

Will be moving house in a few weeks and thinking now is the time to get my insurances sorted out. Does anyone know of a policy that is combined life/unable to work/mortgage cover?

ACG

The policies you are after are all separate. But you can buy them all from one company in whats called a menu policy - basically you pick what you want from it.

Its worth speaking a broker for this, as it can turn out to be pretty complicated/in depth.

scotty1972

Thinking about this I think I don't really need anything to cover being laid off as I've enough feathers in my cap that I reckon I'd find something. I guess what I need is something to cover the mortgage if one of us dies and enough to enable the other to stay at home until kids are taking care of themselves. What I'm not sure about is this critical illness thing as seems to me that when you think of the endless possibilitys of ilnesses you can get and the limits on the policys that chances are it wouldn't pay out anyway.

marathonic

Family Income benefit sounds like the product you might be looking for - instead of paying a lump sum of, for example, £200,000, you get a payment of, for example, £20,000 per year from the date of death to the end of the policy term.

Therefore, if you go for a 20 year term, until the kids are expected to have left university, the family would be paid a total of £20,000 per year for 19 years if the worst were to happen next year but only for 2 years if you were to pass away in 18 years time.

Basically, the product can be cheaper because the level of total coverage decreases as the term progresses.

kingstreet

I would look at your need for life cover and income protection.

They may be best addressed by two separate plans, for example if you have a "risky" occupation and the only way to get "own occupation" cover is via a specialist income protection provider.

Such firms also charge the same rates for smokers as for non-smokers, so there may be a possible saving there.

The life cover can be addressed by the mainstream providers, using lump sum term assurances, or by family income benefit, which is effectively decreasing term assurance and is cheaper as a result.

stephenni1971

marathonic wrote: »

Family Income benefit sounds like the product you might be looking for - instead of paying a lump sum of, for example, £200,000, you get a payment of, for example, £20,000 per year from the date of death to the end of the policy term.

Therefore, if you go for a 20 year term, until the kids are expected to have left university, the family would be paid a total of £20,000 per year for 19 years if the worst were to happen next year but only for 2 years if you were to pass away in 18 years time.

Basically, the product can be cheaper because the level of total coverage decreases as the term progresses.

The OP specifically talks about a policy to cover the mortgage in the event of death... And then you suggest FIB?

marathonic

stephenni1971 wrote: »

The OP specifically talks about a policy to cover the mortgage in the event of death... And then you suggest FIB?

He also states 'and enough to enable the other to stay at home until kids are taking care of themselves'. He knows about mortgage cover, as do most people. I mentioned Family Income benefit as it's more likely a product he wasn't aware of.

And, for a lot of people, a proper family income benefit results in the removal of the need for mortgage cover to pay it off in it's entirety. For example, where's the need for your dependents to have a mortgage free property if you've already secured them a significantly higher annual income on your death?

ACG

I think what Stephenni is saying is that, he has a couple of needs and your suggesting just one product to cover one of those needs. So if the OP listened to you (Marathonic) he may just go out and buy that product and thing job done.

Anyway...

To the OP, I rarely sell unemployment cover, its more for those people who are not confident of getting another job for whatever reason.

Critical Illness can be great, and another advisor on here terms it as though its good if your "lucky" enough to get one of the conditions covered. My personal preference is PHI/Income Protection. It pays around 60% of your pre tax income until the end of the plan term or your retirement date whichever is sooner - its not linked to a mortgage.

This is why i thought it might be a good idea to speak to a broker, they can go over all the different plans with you, even some you may not have thought about.

marathonic

I see what you're getting at. But my thoughts, for example, are let's say you had two needs:

• A mortgage on your home;
• The costs of raising children until they're left university

In the quotes I was looking at for various types of insurance, it is usually cheaper to increase coverage when compared to taking out a separate policy to cover the second need (as one would expect due to policy fees to cover administration, etc.).

With the above needs in mind, is there much difference between getting £20,000 per year Family Income Benefit protection and a separate £100,000 policy to cover a mortgage that has monthly payments of £400, when compared to just getting Family Income Benefit of £24,800 per year?

Sure, there are risks involved (interest rates rising, etc.). However, should someone with two needs not try quotes for separate products and then compare them to quotes for a single product to cover both needs?

It may not be 'the done thing' but I don't see where it offers any less protection.

Obviously, there's things like mortgage term when compared to the term needed before childrens university ends - but, for a lot of families, this can be two life events that happen at very similar times.

As an example, in my case, I can get a quote for £150,000 decreasing term life insurance over 25 years for £5.08 per month and a Family Income Benefit of £20,000 per year over 25 years for £9.07 per month. This is a total of £14.15 per month for my protection needs.

For £12.61 (£1.54 less per month), I can just go for a single, Family Income Benefit policy with a benefit of £30,000 per year.

The extra £10,000 per year should pay the £150,000 mortgage, with money left over.

weighty1_2

marathonic wrote: »

He also states 'and enough to enable the other to stay at home until kids are taking care of themselves'. He knows about mortgage cover, as do most people. I mentioned Family Income benefit as it's more likely a product he wasn't aware of.

And, for a lot of people, a proper family income benefit results in the removal of the need for mortgage cover to pay it off in it's entirety. For example, where's the need for your dependents to have a mortgage free property if you've already secured them a significantly higher annual income on your death?

By not having a policy which allows for the immediate repayment of the mortgage you are likely costing the client 10's of thousands of pounds in interest. THAT is why it is better to have a plan which allows for the immediate repayment of the mortgage.

Plus, immediate repayment of the mortgage removes the risk of interest rates going through the roof in future years. I'd have clients who remember their interest rate on the mortgage being at 15%. A FIB certainly isn't the best option in the clients circumstances. It's not entirely inappropriate but justifying it would be for difficult.

marathonic

weighty1 wrote: »

By not having a policy which allows for the immediate repayment of the mortgage you are likely costing the client 10's of thousands of pounds in interest. THAT is why it is better to have a plan which allows for the immediate repayment of the mortgage.

Plus, immediate repayment of the mortgage removes the risk of interest rates going through the roof in future years. I'd have clients who remember their interest rate on the mortgage being at 15%. A FIB certainly isn't the best option in the clients circumstances. It's not entirely inappropriate but justifying it would be for difficult.

That's the problem a financial advisor faces - it's difficult to take any risk with respect to insurance, no matter how small. They must be able to justify their proposals given to clients to avoid potential future mis-selling action if, for example, as you say, interest rates were to rise to 15% - however unlikely that may be.

As someone going the direct route, I have the option to take the slight risks. And what is the slight risk - well, given the fact that I can get a £35,000 Family Income Benefit policy over 25 years for £14.52, or 37p per month more than the two separate policies shown above, the risk is that a £15,000 additional annual payment won't cover a mortgage of £150,000.

Your point about them having to pay extra interest is correct - but the extra money they get with the Family Income Benefit policy more than covers this.

It may not for everyone - but, for me, I'd be happier leaving the £15,000 additional annual payment to loved ones than the remaining portion of a £150,000 decreasing term policy.

Just because it doesn't conform to the black and white teachings of the books, doesn't mean it's not a better option.