Young FTB - confused about critical illness / life insurance

monthlypaymentsaddup

Hi MSE - first post but I've been lurking around the site for a while now and could do with some advice.

I'm a single 25 year old FTB with no dependants about to complete on a property. I understand that I need some sort of cover for my mortgage at a minimum - should something happen that affects my ability to work and pay off the debt.

My bank's Mortgage Adviser has recommended that I do not need life insurance (as I have no dependants) and that as a result she is only recommending critical illness insurance (provided by the bank, but not a condition of the mortgage).

My confusion comes from the fact that in my mind this is a significant piece of cover that I am potentially paying up to £40 a month for (as far as my budget can extend if the cover is worth it), so want to ensure the best long term option that gives me peace of mind and can be secured cheaply whilst I'm still young. My existing quote is £25 for decreasing term critical illness cover (bit more costly because I currently smoke), mortgage term is 23 years.

What happens if in the next 5/10 years I start a relationship and family?
My needs will have changed to merit life insurance, so should I think long term and get life + critical illness insurance combined now whilst its relatively cheaper? Or should I just wait and ask myself this when (/if) the circumstances in fact change?

What sort of cover have other people similar to this situation got?
Is decreasing term better than level term in my position?
I'm aware that some providers have conditions to allow for "life events" - who is best for this?
Should I just stick with the existing bank quote for critical illness decreasing term / find an equivalent cheaper elsewhere?

dunstonh

My bank's Mortgage Adviser

Never by from a bank. They are an expensive distribution. Their product will be around 25-50% more expensive than than IFA or whole of market mortgage adviser. They also have more limited product ranges and cannot offer best on market.

What happens if in the next 5/10 years I start a relationship and family?

You deal with it then. Or you use an IFA or whole of market adviser to advise on a CI policy with life assurance included at no (or very little) additional cost.

What sort of cover have other people similar to this situation got?

Generically, you would expect income protection (PHI), possibly MPPI and critical illness cover to be the considerations (depending on additional circumstances we dont know about you)

Is decreasing term better than level term in my position?

For mortgage, absolutely.

I'm aware that some providers have conditions to allow for "life events" - who is best for this?

They are known as guaranteed insurability options. It means that you can apply for increased cover on certain events and be guaranteed to be accepted for cover (although price will reflect the risk)

hould I just stick with the existing bank quote for critical illness decreasing term / find an equivalent cheaper elsewhere?

answered above.

monthlypaymentsaddup

Thank you very much dunstonh, I think I've got most of what you've said.

Thinking about my options and bearing that in mind, it seems that shopping around for critical illness decreasing cover for the term of the mortgage is a good option.

I'm also now wondering if Income Protection (not PPI) is also a smart thing to get also?

If Income Protection is a good thing to have, is it possible to combine it with critical illness cover, and should I?

---Edit---

Just doing some additional research using an online quote comparison site, and at least with them, although income protection plan quotes are available, it doesn't seem possible to get critical illness cover (like the type offered by my bank).

Aretnap

Income protection insurance comes in two flavours. The simpler version covers you for illness or unemployment, but only pays out for a maximum of 12 months - after that you're on your own. The full fat version (Permanent Health Insurance) only covers illness, but will continue to pay you a regular monthly income for as long as you're too ill to work, or until you reach the retirement age. Make sure the quotes you're getting are for the version you want (and PHI isn't commonly sold online - it's best to see a broker or IFA for it).

You can have Income Protection, PHI and critical illness cover if you like, and if you can afford it, but if there's a choice to be made personally I'd regard PHI as the top priority. Its advantages over CI cover are (1) having your mortgage paid off if you become seriously ill sounds great - but how are you going to pay the rest of your living expenses if you're too ill to work for the next 20 years? A regular income for as long as you need it is less exciting, but probably more help. and (2) CI cover only pays out for a fixed list of illnesses - if you get a serious illness which isn't on the list, it's tough luck.

Meanwhile the fact that a basic income protection insurance only pays out for twelve months is obviously a major disadvantage. The fact that it does cover unemployment is something of a plus, but then I'm fortunate enough to have enough savings not to have to worry too much about short term unemployment, and in the medium to long term I'm confident about my ability to get another job - a lot more confident than I am about my long term health.

If you do get Critical Illness cover, look into combining it with life cover as well. You may well find that there's little or no difference in price between CI alone and life and CI, and if so having life cover in place now means that it's safely sorted if you do find that you need it in future.