Life Insurance, Years of Cover

mary_mo

My husband and I are looking to renew our life insurance as our current premium is very high (our own fault for being lazy in not switching).
Our mortgage is currently 24 years and we have a young daughter and one on the way so will need cover for a good few years. What is the benefit of putting in a 25 year policy cover against the minimum 5 years (which is a much lower premium) if we are going to look to switch every couple of years to avoid the trap of being charged higher premiums again? I'm not sure why we would need to state a full 25 year cover with one company, at a higher rate, that we don't foresee being with for 25 years?
Any advice on this would be much appreciated.
Mary

dunstonh

Our mortgage is currently 24 years and we have a young daughter and one on the way so will need cover for a good few years.

You will probably need at least 2 lots of life assurance.

What is the benefit of putting in a 25 year policy cover against the minimum 5 years (which is a much lower premium) if we are going to look to switch every couple of years to avoid the trap of being charged higher premiums again?

Life assurance is not something you normally shop around for every 5 years. You get older and the premiums rise. You may get health conditions (inevitable at some point) which increase the cost of life cover or even make it unobtainable. So, if you have a 25 year need then you take it out for a 25 year need.

I'm not sure why we would need to state a full 25 year cover with one company, at a higher rate, that we don't foresee being with for 25 years?

Most people will go to the end or near enough. Don't mistake life assurance over a term for being the same as car or house insurance.

tacpot12

Taking out life insurance for a long period is the cheapest way to buy this sort of insurance for the reason dunstonh suggests - the premium you pay never increases. Your insurance effectively gets cheaper every year due to inflation. In 25 years time the premium will be tiny and the benefit still massive.

I bought my life insurance 15 years ago when I bought my house, and still it has 5 years left to run. It was so cheap, I just added together what I wanted to leave my children as a minimum to the cost of the house and bought a policy for that amount. I spend more on broadband each month than I do for that policy now.

csgohan4

Make sure you protect your premiums against future rises as I pay more for my broadband too than my life assurance.

Aretnap

mary_mo wrote: »

My husband and I are looking to renew our life insurance as our current premium is very high (our own fault for being lazy in not switching).

Life insurance premiums don't tend to rise year on year just because you haven't switched. They may be reviewable after, say, 5 years, but that only means they can be increased in line with the general market (eg because investment returns have been poor, or because people in your postcode area are dying more frequently than before) - but not based on your own circumstances (eg because your health has deteriorated. You can if you prefer get a fixed premium which will is guaranteed not to rise at all for the duration of the policy.

If you're seeing equivalent cover cheaper it's more likely that your current policy was expensive to begin with - did you buy it from the bank who sold you the mortgage? Or it may be that the cover is not actually equivalent - does your current policy include critical illness cover?

Our mortgage is currently 24 years and we have a young daughter and one on the way so will need cover for a good few years. What is the benefit of putting in a 25 year policy cover against the minimum 5 years (which is a much lower premium) if we are going to look to switch every couple of years to avoid the trap of being charged higher premiums again? I'm not sure why we would need to state a full 25 year cover with one company, at a higher rate, that we don't foresee being with for 25 years?

The 5 year policy is cheap because it will only pay out if you die in the next 5 years. As you're presumably young(ish) and healthy(ish), it's unlikely that you're going to die in the next 5 years, so there's little risk of it having to pay out.

The 25 year policy will pay out if you die any time in the next 25 years. Obviously this is a lot more likely - so the premium is naturally higher.

You could in theory take out a 5 year policy and hope to renew it in 2021, but this is not necessarily a good idea. At best a new policy will be more expensive in 2021, because you'll be (certainly) less young and (probably) less healthy by then. And at worst one of you will have developed a serious condition by then (eg cancer) which means that no insurer will touch you. In which case it's tough luck, you now have no cover - just when you need it most.

So in short, if you think you'll need life insurance for the next 25 years, get a 25 year policy.

Fletch7

Everytime you take out a new life insurance policy you are underwritten (asked the health and lifestyle questions) If you plan on taking 5 years of cover every 5 years you are betting that your health circumstances will not change. If you develop a serious health issue you are going to have a lot trouble getting new cover once that 5 year policy expires. At the very least you will be 5 years older, life cover tends to be more expensive the older you are.

You could buy the 25 year policy now, there is nothing stopping you in 5 years trying quotes for 20 years of cover and taking out a new policy and cancelling your existing one if it works out cheaper.

Also life insurance will not automatically renew once it reaches the end of the term, you'd have to remember in 5 years to sort it out or you will be without any life cover should the worst happen.

mary_mo

Thank you all for the feedback... we have found it really helpful. I think we perhaps were sold a bad policy/high policy to begin with. Our premiums are definitely higher now than they were when we took it out nearly 10 years ago as first time buyers, but we expected it should decrease as our mortgage decreased? Saying that our circumstances have changed somewhat since then (ie we now have children and a new home) so actually starting again probably won't be such a bad thing to get a policy more relevant to us now. But as you all recommend, trying to get a policy and company that are good and sticking with it from here on out.