Do we need life insurance?

chelseablue

Our mortgage broker has contacted us asking about life insurance when our purchase completes.


I already have life insurance through my employer which pays 8 x my salary if I die.


I am also in the Income Protection Scheme (from memory I believe that if something happens to me and I cant work again I am paid half my annual salary until I reach retirement age).


So Im thinking surely we don't need more life or income protection insurance?


Also would we need any other insurance for the mortgage? I think its called level term insurance??

chris_m

Depends on whether or not the mortgage lender will accept what is available through your employer.

G_M

Entirely up to you.

Imagine if bad things happen: lost job, illness, redudancy, death etc

Would your spouse & family cope financially? would the insurane you currently have be enough for the mortgage and other living costs?

Of course, it also depends if your partner also works or is totally financially dependant.

You choose.

ps - level term insurance just means it pays out the same amount whenever the claim is made. The alternative is a policy where the pay-out increases with inflation as the years pass

http://www.moneysupermarket.com/life-insurance/level-term/

chelseablue

chris_m wrote: »

Depends on whether or not the mortgage lender will accept what is available through your employer.

Thank you. Will they ask to see details of the insurance?


When I purchased my current property 5 years ago I was never asked if I had life insurance, nor when I re-mortgaged to a new lender 2 years ago.


I thought it was just buildings insurance that was compulsory?

pinkteapot

Most mortgage lenders only insist on buildings insurance. I've never had a mortgage where life assurance was a requirement.

Two types of life insurance/assurance:

1. Level term. Pays out the same amount throughout the policy. Eg £200k for 20 years. Pays out £200k if you die at any time in the next 20 years. More expensive.

2. Decreasing term. Pays out less, steadily over time. Eg £200k over 20 years. If you died next week, it'd pay out £200k. If you died in 19 years time, it would pay out some small amount (few thousand maybe?). Designed to decrease over time in the same way as your mortgage capital outstanding, so it should be enough at any given point to pay off the mortgage.

What you need depends on your circumstances. Assuming we is you and a partner, work out what money each of you would have if the other dies. Could you afford the mortgage by yourself? Would you want it paid off in full so you didn't have to go back to work if you didn't want to? Etc.

If one of you has better death in service than the other, and assuming your mortgage lender doesn't insist on insurance, you can just take out life insurance on one of you. Eg if your partner has no death in service, life insurance on them so you'd get the payout if they die.

I didn't bother with life insurance when I bought my first place, as I was single and lived alone. If I died, the bank could just repossess for all I cared! (Or, in reality, my family would have sold it, paid off the mortgage, and kept what was left). Hubby and I didn't bother on our first house together as we had a tiny mortgage.

We now have a large mortgage though, which I certainly couldn't afford by myself (he could, but only just), so we do now have it. Decreasing term only costs about £25/month for both of us (£220k of cover, decreasing).

Shop around - I've had friends pay eye-watering amounts for insurances flogged to them by their mortgage broker. Ask your broker if they are whole of market for insurance (even if they are for mortgages, it doesn't mean they are for the insurances). Do your own research/quotes to make sure you're getting a good deal.

chelseablue

G_M wrote: »

Entirely up to you.

Imagine if bad things happen: lost job, illness, redudancy, death etc

Would your spouse & family cope financially? would the insurane you currently have be enough for the mortgage and other living costs?

Of course, it also depends if your partner also works or is totally financially dependant.

You choose.

If I were to die my life insurance would pay out £248,000.


Our mortgage will start off at £230,000 (but planning to overpay as soon as possible).


So if the worst was to happen and I peg it shortly after moving in my partner would have enough to pay off the mortgage and have approx £18k left over.


He works full time so if there was no mortgage to pay he could easily afford the bills on his salary.


I guess redundancy is the only thing we don't have covered, but is redundancy insurance worth getting?

pinkteapot

If your partner dies, can you afford the mortgage? You might want life assurance on him... You can get decreasing term on one person only.

One tip re joint vs single life assurance for anyone else reading... It's often worth having single policies on each of you, rather than a joint policy. With a joint policy, it pays out on the first death only. Ie the policy ends after one death. If you both die at once, it pays out once. With separate policies, if you both died at once, both would pay out - a double payout. And, importantly, it often costs the same or very little more for two separate policies, rather than a joint one. Check quotes for two single policies for the same amount of cover as one joint policy - you might be surprised - two payouts for the price of one! (If you're both in a horrible accident! :eek:)

Lungboy

What about sickness and/or critical injury cover? Might be worth looking at those too.

chelseablue

pinkteapot wrote: »

Most mortgage lenders only insist on buildings insurance. I've never had a mortgage where life assurance was a requirement.

Two types of life insurance/assurance:

1. Level term. Pays out the same amount throughout the policy. Eg £200k for 20 years. Pays out £200k if you die at any time in the next 20 years. More expensive.

2. Decreasing term. Pays out less, steadily over time. Eg £200k over 20 years. If you died next week, it'd pay out £200k. If you died in 19 years time, it would pay out some small amount (few thousand maybe?). Designed to decrease over time in the same way as your mortgage capital outstanding, so it should be enough at any given point to pay off the mortgage.

What you need depends on your circumstances. Assuming we is you and a partner, work out what money each of you would have if the other dies. Could you afford the mortgage by yourself? Would you want it paid off in full so you didn't have to go back to work if you didn't want to? Etc.

If one of you has better death in service than the other, and assuming your mortgage lender doesn't insist on insurance, you can just take out life insurance on one of you. Eg if your partner has no death in service, life insurance on them so you'd get the payout if they die.

I didn't bother with life insurance when I bought my first place, as I was single and lived alone. If I died, the bank could just repossess for all I cared! (Or, in reality, my family would have sold it, paid off the mortgage, and kept what was left). Hubby and I didn't bother on our first house together as we had a tiny mortgage.

We now have a large mortgage though, which I certainly couldn't afford by myself (he could, but only just), so we do now have it. Decreasing term only costs about £25/month for both of us (£220k of cover, decreasing).

Shop around - I've had friends pay eye-watering amounts for insurances flogged to them by their mortgage broker. Ask your broker if they are whole of market for insurance (even if they are for mortgages, it doesn't mean they are for the insurances). Do your own research/quotes to make sure you're getting a good deal.

Thank you, lots to think about.


I think if I was to die we are adequately covered.
But I will ask my partner if there is any death in service benefit with his job.

chelseablue

Lungboy wrote: »

What about sickness and/or critical injury cover? Might be worth looking at those too.

I am covered for that through work, I would get half my salary paid (until I reach retirement age if I could never work again)


I will ask my partner if he has anything like that

pinkteapot

Re redundancy, critical illness, income protection, etc...

Looks closely at policy inclusions/exclusions, and how long they pay out for. Some have a limit (eg they'll give you a monthly income for a year).

If you're the sort of person who always has a good pot of emergency savings, they're less worth it. You can end up spending quite a lot on these insurances. Again, look at your finances, work out what would happen if one of you were seriously ill and couldn't work... Look at how your budget would be.

Redundancy cover - also depends on how easy you each find it to find jobs. If you're in sectors where people move around a lot, jobs are relatively easy to come by when you want them, etc, then less worth it than if you're someone who can take a couple of years to find a new job just because there's not much available in what you do.