Life Insurance and Critical Illness Cover

glos1983

Me and my wife are in the process of buying our second home and have just met with a mortgage advisor. We were strongly advised to take out life insurance and critical illness cover. The advisor said they got no commission but were just there to help. We are both 30, taking out a £182k loan over 30 years and was quoted £30 a month for decreasing life cover or £105 per month with CI as well.

To be honest I never really considered this before as last time we bought we were mid-20's with no dependants. My wife is pregnant with our first child so I am keen to have life insurance as a minimum.

However, what we were quoted seems very high. I have shopped around and found quotes for less than 50% of what the mortgage advisor quoted. She was only looking at Scottish Widdow and said it was the best policy around. I'm no expert but surely reputable companies like AXA (they quoted £12 for life cover) can't be that much different. Is it common for mortgage companies to be tied in with insurers even when they say they receive no commissions??

We were also looking at different options regarding the level of CI cover (for example just covering half the mortgage). What is a reasonable level of cover here? I want to protect my family but not waste money on being over-insured.

opinions4u

Chances are your mortgage adviser can only sell one company's products. So the price is unlikely to be the best on the market.

So here's a couple of thoughts:

1. For life cover, shop around. Check that premiums are not reviewable (you don't want the company increasing the premium after 10 years - if they can, they will). Consider taking out more life cover than the mortgage amount, but take into account any death in service benefits you have. Make sure cover starts from exchange of contracts.

2. Consider a critical illness rider on a life policy if it offers value but look at prioritising your finances towards a PHI policy that replaces income if you're ill long term. Income when ill is more practical than a lump sum.

3. Review your 30 year term. When your child is 18 you will want to free up income to support with university costs. When you are passing 50 you will not want to be working until you're 60. Decisions made now can restrict choice later in life. Either reduce the term or start as you mean to go on with overpayments out of each and every pay packet.

4. Self insurance is the cheapest way. Build up a contingency fund of 3-6 months net pay for each of you. This will help you cope with shorter term illnesses or other financial demands of home ownership.

dunstonh

The advisor said they got no commission but were just there to help.

Just because the adviser is not paid a direct commission, does not mean the employer isnt. The quotes will tell you how much commission is paid.

She was only looking at Scottish Widdow

Is this Lloyds TSB /Halifax? In which case, they can only retail scottish Widows and the price they retail is about 30-40% higher than an IFA could obtain. The staff members are on targets and bonuses paid depending on targets achieved.

Scot Wid is rarely the best product around in any area. It sounds like you are being given the typical sales approach that is so common with banks and tied agents.