Do I need life insurance?

Jojo_fry

Hi all,

I'm sure someone will be able to help as I'm pretty confused here!

When I took out a mortgage in Sept last year for my shared ownership flat, they told me I HAD to have life insurance, so I've got life insurance and critical illness cover with Legal and General at £25 a month. In the event of my death my mortgage will be paid off, or if I can't work due to the normal things covered by critical illness policies.

HOWEVER

I only own 30%, the mortgage on my share is only £80k. I have death in service benefits with my job which would pay out 3x my salary, which would easily cover my mortgage. I'm currently not married and don't have children (although my partner and I are trying) so I don't have any dependents at the moment.

I'm thinking that it's probably a total waste of money and I should cancel it, but what if I were to get ill and couldn't work? Is it worth continuing the policy just in case?

dunstonh

Do you have anybody that would be financially worse off in the event of your death?

By the sounds of it, your partner would.
1 - loss of income (immediate)
2 - reduced pension benefits (future)
3 - left with debt from mortgage

The death in service is designed to go someway to cover reduced pension and immediate loss of income. By the time it covers those, there is little scope for it to be used for debt provision.

but what if I were to get ill and couldn't work? Is it worth continuing the policy just in case?

And that is the gamble only you can decide.

Quentin

Jojo_fry wrote: »

When I took out a mortgage in Sept last year for my shared ownership flat, they told me I HAD to have life insurance,......
I'm thinking that it's probably a total waste of money and I should cancel it, but what if I were to get ill and couldn't work? Is it worth continuing the policy just in case?

If you are correct (in saying it was a condition of the mortgage offer), then whether or not it's a waste of money you have no choice but to keep the policy going till the mortgage is paid off.


If you think it's cost effective you could look into remortgaging with a different lender who doesn't insist on the life cover.

pinkteapot

Who said you HAD to have insurance, and do you have this in writing?

If it's in writing, and it was a condition of the mortgage or shared ownership arrangements, you can't cancel.

If it was a mortgage broker who said it verbally and was pushing insurances, you can cancel (so long as it's not in your mortgage T&Cs).

Life insurance: are you single? What would happen if you died? I used to own a flat when I was on my own and I didn't bother with life insurance. If I'd died, my family would have sold the flat, paid off the mortgage, and kept any extra for themselves. If the flat had been in negative equity, the debt would have died with me so they wouldn't have had to pay.

Critical illness, income protection, etc.... I'm pretty skeptical about these policies. They tend to have quite a few exclusions, they only kick in after X amount of time and only pay out for X months/years. If you can build up a pot of emergency savings to live on for six months, I'd do that instead. I always figured that if I became so ill that I couldn't work for that long while single, I'd probably have to sell the flat and move in with family anyway. But I'm not very risk-averse and a lot of people do have these policies for peace of mind, which I can completely understand.

Jojo_fry

Well, my partner wouldn't be financially worse off if I died, we don't technically live together, it's a bit complicated but he works away during the week and is only there at weekends, and since he doesn't have any stake in the property and we are not married, he wouldn't be liable for anything in the event of my death.

I only support myself, he earns vastly more than I do, so in that respect, if I couldn't work, the only person affected would be me.

I'm sure that having life insurance is not a condition of any mortgage, it's just something that so-called mortgage advisors tell you that you need to have.

As I've said, the only thing I would be concerned about is losing my job or not being able to work for some reason, and still having to pay the mortgage. That said, because I've got a shared ownership property, I would need a policy that would cover the rent and service charge as well as the mortgage, so it seems to me that the product I've got at the moment is probably not worth having.

Any further thoughts?

dunstonh

I'm sure that having life insurance is not a condition of any mortgage, it's just something that so-called mortgage advisors tell you that you need to have.

Some brokers (quite a lot actually) require the purchase of insurance through them to allow them to provide "free" mortgage advice. They make the bulk of their money on the insurance side. This model is allowed. However, if you cancel in the early years, there may be a clawback on the commission paid to the broker and the broker may have terms that allow them to come after you for the loss. So, you may wish to check that first.

Critical illness, income protection, etc.... I'm pretty skeptical about these policies. They tend to have quite a few exclusions, they only kick in after X amount of time and only pay out for X months/years.

You are thinking PPI. These are the budget versions of income protection. The "proper" class of income protection is known as permanent health insurance and is far more valuable and is long term (it can pay out until retirement). It will have far less exclusions and is underwritten at point of sale (not point of claim like PPI). PHI is much higher in the pecking order than PPI.

magpiecottage

We cannot know if life cover was a requirement of the lender because we have not seen your mortgage terms and conditions.

It sometimes happens and the fact that it is shared ownership may mean that the lender requires it because they do not want to be stuck with a part owned property if you pop your clogs.

Similarly, the co-owner may not want to be left having to deal with your debt and make it a requirement of shared ownership,

Jojo_fry

I will check my mortgage Ts&Cs but what I'm trying to ascertain is whether this cover is actually worth having

kingstreet

Being single no dependents, you have no demonstrable need for life cover.

There is a demonstrable need for critical illness cover.

Critical illness cover pays out if you get one of the list of conditions to the required severity. You have to survive (eg) 28 days, or no payout.

To add life cover to critical illness cover costs about ten bob a month. That's 50p to the youngsters out there.

If you get one of the list of conditions to the required severity and you don't survive (eg) 28 days, the life cover pays out instead.

When you put it like that to most people, they think combined life and critical illness cover is a good idea, dependents or not.

I'd argue income protection is much more valuable than critical illness cover as ensuring you can pay your mortgage, bills and SO rent* is more important than the lottery-win impact of a successful critical illness claim.

* SO rent is actually something for which you can claim Housing Benefit.

Quentin

Jojo_fry wrote: »

...I'm sure that having life insurance is not a condition of any mortgage, it's just something that so-called mortgage advisors tell you that you need to have.



Any further thoughts?

Yes.


You are mistaken, lenders do sometimes make life insurance a condition for offering the loan.


(You indicated so in your OP!)


As suggested, you don't have to accept the condition and can shop round other lenders to see if you can find one that doesn't require it.


The problem may be the cost of remortgaging - meaning it could take years before you see any saving over carrying on with the policy (assuming it was a condition for granting you the mortgage)


You can check the mortgage offer and see what it says regarding this and take it from what you discover.

Jojo_fry

I have checked an no, life insurance is not required by my mortgage lender, the only mandatory insurance is buildings insurance which the Housing Association has and I pay through my service charge.

It seems to me that the critical illness cover provided is not really worth it because it will only cover the cost of the mortgage, and what might be more worthwhile would be income protection, no?