Applying for mortgage, been told I should buy life insurance. I'm clueless!

unexploded

Hi, and a happy new year to you all.

I'm in the process of obtaining a mortgage with my partner. Our mortgage advisor is now advising that we should consider life insurance. She has quoted us a joint insurance package.

I'm 28, and life insurance has never crossed my mind once. I mean, I'd still play with lego if it was socially acceptable at this age! (that's a joke... ahhh half joking :rotfl:) I've no idea about this stuff. Clearly I should grow up!

Could anyone recommend what I should be considering, where to look etc?

If it helps, I'm in good health, not aware of any issues with family health etc. My partner who is joint on this mortgage is 27 and has some health issues in her family. We aren't married right now.

I'm actually travelling right now too, do I need to be present in the UK to apply for this kind of stuff? What documents will they need to get an application going?

Thanks

InsideInsurance

Have seen architects build models of proposed buildings in lego - they even do a special set for them - http://shop.lego.com/en-GB/Studio-21050 - so certainly acceptable.

The four key insurances to consider are:

1) Life - pays out a lump sum if you die (or in some cases if you are diagnosed with less than a year to live)

2) Critical Illness - pays out a lump sum if you develop one of a specified list of illness with the required markers. It may be something that stops you working for life or could be something you recover fully from. Anything that isnt on the list or doesnt have the required markers then no payout even if its going to kill you

3) PHI (Full fat Income Protection) - covers sickness or accident that stops you working. Pays out a regular income until you are fit to go back to work or until your 65th birthday

4) ASU (aka PPI and basic Income Protection) - as above but adds unemployment cover from involuntary redundancy. Rather than paying out until you are 65 though it only pays 12 months after that you are on your own


To be able to say what you need and to what level will depend very much on your life plans, what you may get as an employee benefit and if you care what happens to your partner etc if you were die tomorrow etc (sounds harsh but I do know some who actively dont want their partners to get anything when they die)

You really should speak to someone who can do an advised sale across them all. Some brokers can others can't.

pinkteapot

I'm 33, play with Lego (without having kids) and have life insurance.

I'll just talk about life insurance, and not the other products available mentioned above (eg critical illness, which pays out if you become seriously will which may stop you working and therefore cause you problems paying the mortgage).

There are two main types of life insurance to think about:

1) Decreasing term - the amount paid out on death decreases over time, roughly in line with the size of your mortgage outstanding. So, if your mortgage is for £200k over 20 years, people typically take out £200k of decreasing term life assurance over 20 years. If they die in year 19, the payout is small, but should still be enough to pay off the mortgage remaining at that point.

2) Level term - the payout will always be the same. Whether you die in year 1 or year 19, the payout is the full £200k.

Decreasing term is a lot cheaper than level term. I'm a non-smoker with no medical conditions and I'm only paying £9 per month for £240k of decreasing term cover over 20 years. The idea is that if I die, the payout would clear the mortgage so my other half wouldn't have to pay it by himself.

One thing worth getting quotes for is the option of you each having a sole policy instead of a joint one. For us, the total monthly payment for two sole policies was the same as the cost for one joint policy. The benefit is that if we both die, both policies will pay out. Joint policies pay out once, on the first death. If we have kids then we're both killed in an accident say, they'll get two payouts and can use one to clear the mortgage and the other to have some cash. Seemed like a no-brainer to us to have two payouts instead of one for the same price if the worst happens!

Life insurance is all about working out whether the surviving partner or any kids/dependents can stay in the house after a death. A lot of people might think they'd want to move to get away from the memories, but it's nice to not be forced into a quick sale at a horrific time because you can no longer afford the mortgage!

As the poster above says, whether you need it and how much you need depends on what other 'death' benefits you have. Eg some employers offer a death in service benefit that pays out if you die while working for them.

We've taken out decreasing term assurance even though we both have death in service. If one of us dies, the insurance will pay off the mortgage balance and the death in service will provide a lump sum to live on, cover any period we're unable to work while grieving, etc.

Andy7856

Ditto this comment"
As the poster above says, whether you need it and how much you need depends on what other 'death' benefits you have. Eg some employers offer a death in service benefit that pays out if you die while working for them."




People get flogged life insurance when may have perfectly good cover provided elsewhere. Also if you do decide to get it, then consider buying it yourself via discount broker or online to get a better deal.

hcb42

It is of course up to you, but I would certainly go for decreasing life as it is so cheap considering what it protects you against

Even if you have death in service benefits now, as we both do, there is always the chance that you wont have it for the life of your mortgage, e.g. change jobs, career break etc..

The other options of losing job, becoming too ill to work etc are obviously also risks (indeed more likely to happen than death within the mortgage term...) and are much more expensive to cover, hence why you do need to consider all your options with specialist advice.

Thrugelmir

unexploded wrote: »

If it helps, I'm in good health, not aware of any issues with family health etc. My partner who is joint on this mortgage is 27 and has some health issues in her family. We aren't married right now.

Everyday people of all ages unexpectedly die or suffer from an ailment from which they never fully recover. Only when your eyes open tomorrow morning will you know if you've been granted another day.

When considering insurance. Look at the situation of those left behind.

thenudeone

It used to be the case (and may still be) that you couldn't get a mortgage without having life insurance, so that if one of you dies, the other can pay off the mortgage.

BS's and banks do not like to have to throw penniless widows/widowers/unmarried partners out of their homes if the main earner dies. It's costly, time consuming, causes bad publicity, and could lose them money if there is a high LTV.

Everyone thinks death won't happen to them, but some day it will, and for some people it will be sooner than they think.

A friend's husband in his early 50s died unexpectedly from a heart attack a couple of months ago, and she is probably going to have to sell the home now, because they didn't have any life insurance and he was the main earner. Don't let it happen to you.