Feeling pressurised to take out Critical Illness policy

Moonraker71

Hi, I'm just after a bit of advice and/or feedback.

I'm currently applying for a mortgage via a well-known national mortgage broker. They've been pretty good so far, but v keen on pushing lots of other stuff. Long story short is that I feel like I'm being slightly railroaded into taking out a Critical Illness policy. I haven't requested any info about one, but keep getting called about it. I've gone through various lines of questioning over the phone and now I'm having an interview with an underwriter tomorrow to 'do the application'. I've stressed that I haven't even decided if I want it yet, and they say that's fine, yet they're still going to need my direct debit details tomorrow apparently... to 'get it ready'.

Anyway, situation is this. I'm self-employed. I am single, no dependents. Age 43. I am not bothered about life insurance. If I die, the bank can have the house back, I don't care.

However, my savings are minimal, so I suppose it would be sensible to have something in place should the worst happen. However, the premiums are extortionate - to get enough cover to pay off my mortgage is going to cost upwards of £75 per month. The most I want to pay is about £30 per month and even that is an expense I hadn't accounted for - and that gets me a lump sum of just £50k: not even a third of my mortgage.

What I would rather have is income protection (I think) but the premiums for that are even more expensive and I don't even qualify yet because I haven't been self-employed for long enough.

I don't really know what to do. I just feel like I'm being pressurised into signing up for something before I've had the chance to really do any research into it. (I like to do a LOT of research and know what I'm getting into). My mind has been so consumed with mortgages and moving house I haven't begun to really think about this yet.

Would it be crazy to just leave it for a bit? Or should I get something set up to start exactly the same time as my new mortgage, which is what they seem to be suggesting is essential?

Sorry for the ramble, thanks for any replies.

dunstonh

Long story short is that I feel like I'm being slightly railroaded into taking out a Critical Illness policy.

You are being given a choice. You say yes or no.

Anyway, situation is this. I'm self-employed. I am single, no dependents. Age 43. I am not bothered about life insurance. If I die, the bank can have the house back, I don't care.

Which all makes sense.

However, my savings are minimal, so I suppose it would be sensible to have something in place should the worst happen. However, the premiums are extortionate - to get enough cover to pay off my mortgage is going to cost upwards of £75 per month. The most I want to pay is about £30 per month and even that is an expense I hadn't accounted for - and that gets me a lump sum of just £50k: not even a third of my mortgage.

It is because you are at the age where claiming is most likely.

What I would rather have is income protection (I think) but the premiums for that are even more expensive and I don't even qualify yet because I haven't been self-employed for long enough.

Income protection probably will be more expensive. However, your time as self employed is irrelevant.

Would it be crazy to just leave it for a bit?

Just make sure you dont suffer a claimable event whilst you wait.

Or should I get something set up to start exactly the same time as my new mortgage, which is what they seem to be suggesting is essential?

Essential no. Common sense, yes.

Moonraker71

Thanks. I'm just not very knowledgeable about insurance overall. I've never had a car, and the only insurance policies I have are contents and pet, both of which are under a tenner a month. For some reason I had a figure of £20-30 in my head for critical illness, but this was based on absolutely nothing so if £50-75 is the ballpark then I need to quickly get my head around that.

Re: income protection, I was told that all the policies they investigated required me to have been self-employed for a clear 24 months before I could start the policy, and I don't hit that milestone until September. If that's not the case then I will ask them to re-investigate.

Thanks for your reply.

kingstreet

Is this firm offering whole market advice on income protection cover, or is it tied to a single provider?

There are specialist firms who offer "own occupation" (the best standard of IP) to those with high risk occupations and charge the same premiums to smokers and non-smokers. Often, the premiums increase slightly each year and the starting premiums can be lower as a consequence.

Sounds like you need to get some impartial advice.

On the CI v IP argument, I'm in the IP camp, I'm afraid. Critical illness cover is great, but what happens if the illness simply stops you working and earning, but doesn't trigger a successful claim on one of the critical illnesses on the list?

If you want to answer the questions, I'll gladly give you an idea of the cost of IP and you can find a good IFA near you and go and discuss it with them so you get a feel for the contract;-

Age
Sex
Smoker/Non-smoker
Occupation & brief description of duties
Retirement age
Waiting period before claim payments start
Net profit last year

I won't disclose the names of providers, but you'll at least have a starting point.

Here's an example;-

Age 35
Sex M
Smoker/Non-smoker NS
Occupation & brief description of duties - Joiner, general carpentry
Retirement age 65
Waiting period before claim payments start 4 weeks
Net profit last year £20,000

for a monthly benefit of £833 (50% of net profit) which is paid free of income tax and national insurance, after a four week waiting period, on an own occupation basis with the benefit paid to age 65 if unable to ever return to work, the initial monthly premium is £24.66.

Moonraker71

Thanks Kingstreet, that's interesting. Happy to answer the questions:

Age - 43
Sex - F
Smoker/Non-smoker - Non
Occupation & brief description of duties - Freelance journalist (mainly desk based)
Retirement age - 65
Waiting period before claim payments start - 4 wks (happy to go up further: 8 wks, 12 wks? if makes noticeable difference?)
Net profit last year - £34k

The co. in question is L&C, I'm not sure if they're whole of market for insurance - ?

Thanks for your help.

ACG

Im another in the IP camp.

There are ways to get the price down... extend the deferred period or take out cover for what you need, not what you can have.

For instance, how much is your mortgage and bills? Thats how much you probably need, anything else is covering your general spend. Think about this another way, if you do not have the budget for income protection/critical illness - what will you do if you have no income?

Im not one to railroad people into taking out insurance but if your cutting it fine whilst interest rates are at an all time low, you need to consider what you would do if you couldnt work and what will happen when interest rates do rise...

Senior_Paper_Monitor

In your circumstances Critical Illness cover seems eminently sensible to me. We have an often quoted expression in the office ... "its cheap to die but seriously expensive to live sick".

However, if you feel you are being pressurised then find another adviser (check any adviser is 'range of providers/insurers' [which L&C are] - the equivalent of whole of market for mortgages). Talk with someone who is willing to spend time with you and analyse the options.

Critical Illness is profitable business for advisers - and I have no problem with that - but you need to feel comfortable that you are receiving advice and accepting it rather than railroaded.

Critical Illness cover is not cheap - that is because it is claimed on regularly.

kingstreet

Age - 43
Sex - F
Smoker/Non-smoker - Non
Occupation & brief description of duties - Freelance journalist (mainly desk based)
Retirement age - 65
Waiting period before claim payments start - 4 wks (happy to go up further: 8 wks, 12 wks? if makes noticeable difference?)
Net profit last year - £34k

For a monthly benefit of £1,416 (50% of net profit) which is paid free of income tax and national insurance, after a four week waiting period, on an own occupation basis with the benefit paid to age 65 if unable to ever return to work, the initial monthly premium is £40.85.

As ACG said, you can take a lower benefit or extend the waiting period to reduce the premiums.

By way of example, extending the waiting period to two months reduces the premium to £36.19 per month.

A "guaranteed premium" contract would be better as the premiums shown above do increase each year, but only you can decide on your priorities. A proper comparison needs to be made for you by a whole market provider. As you've seen, the cost of a decent level of protection is not totally over the top.

Emma_Drewberry

Hi Moonraker

You don’t need to take out life cover or critical illness alongside your mortgage and should not be pressured into taking out a policy that you don’t want.

As your savings are minimal it is worth looking at income protection, as you have mentioned, as it will pay out a monthly benefit if you are off work sick. There is no a minimum period for self employment provided that you have a history of working in the same type of role.

Income protection policies cover you for any illness or injury that prevents you from working. The best policies provide own occupation cover. This means that if you are unable to do your current job you will receive the monthly benefit.

Some policies only provide suited occupation cover which means that if you can’t do your job but can work in another role for which you are qualified (even if it is a lower paid job) they would not pay out.

Policies are available which provide short term cover (meaning that they can only payout for up to 12 or 24 months) or long term cover (which could potentially payout up until retirement age if you were too incapacitated to return to work). It is also possible to make multiple claims under the income protection policy.

Critical illness cover pays out a lump sum if you suffer from one of about 35-50 critical illness conditions. These conditions vary from insurer to insurer and are defined in their policy documentation. Some insurers assess the severity of the condition before paying out. Once you have claimed under the policy it will terminate.

Income protection provides a far more comprehensive level of cover as unlike critical illness it doesn’t specify which medical conditions can be covered. For example, you might be off work with stress or a bad back which would not be covered under a critical illness policy.

It is worth doing some more research and speaking to an independent adviser who is not tied to certain insurance companies and can look at all the policies on the market. They will also be able to discuss with you which type of policy might meet your needs.

Moonraker71

Thanks so much everyone, this is all really good advice and I feel so much more clued up about it now than I did this time yesterday.

I think I just haven't really had time to research it properly and suddenly I'm on the phone answering questions about family history of cancer etc, without really knowing what I'm getting in to.

I'm going to put it all on hold, have a proper look into it, speak to an IFA and make sure I'm really clear on what the best policy for my particular circumstances is before I take it any further.

Kingstreet, thanks for doing those figures for me, that's a really good starting point.