life insurance question

brokeinbristol

Hi I hope someone can help. Both my wife and I have a joint life level term insurance policy for £500,000 ending in 2032. So if one of us dies in that time it will pay out and pay off the mortgage and leave the children with some money too. we have a waiver of premium incapacity on this too, (£1 pcm) which means that if we are unable to work through incapacity then the premiums are waived. This costs us £30 pcm. We also have life insurance on our NHS pensions which pays out twice our annual income should we die in our working lives.
We are buying a new house and have a mortgage for £365,000 over 36 years and have just had a quote for life insurance, decreasing term including critical illness cover for £160pcm. This seems steep (almost vertical!) and I was wondering if it would be better to keep the level term insurance we have and save the difference (£130pcm) in an account. or to bite the bullet and pay for life insurance with critical illness cover and scrap the level term policy?

dunstonh

We are buying a new house and have a mortgage for £365,000 over 36 years and have just had a quote for life insurance, decreasing term including critical illness cover for £160pcm. This seems steep (almost vertical!) and I was wondering if it would be better to keep the level term insurance we have and save the difference (£130pcm) in an account. or to bite the bullet and pay for life insurance with critical illness cover and scrap the level term policy?

Life assurance is cheap because the chances of claiming on the policy are low. Critical illness is expensive as the chances of claiming on the policy are high. That is why there is the price difference.

You never know when you are going to be unwell or suffer a critical illness or when you are going to die. So, its impossible to know in advance what is best. Could you imagine if we told you to not bother with the CIC and then in the years to come you suffered a claimable event which you wouldnt get a payout from because you followed the comments here?

kingstreet

How about income protection instead?

You can set the deferred period at 12 months, so your six months full pay, six months half pay will help to reduce the cost.

The benefit is payable tax-free and it can run for the term of the mortgage, upto retirement whichever you choose.

If you are unable to work due to illness or disability it pays out, rather than critical illness where the illness has to be on the list of permitted conditions and where you may have to suffer a minimum level of severity before you can claim.

£1,500 per month, 52 weeks deferred for a 30 year old non-smoker doctor with a 36 year term is around £20 - £28 per month.

brokeinbristol

dunstonh wrote: »

Life assurance is cheap because the chances of claiming on the policy are low. Critical illness is expensive as the chances of claiming on the policy are high. That is why there is the price difference.

You never know when you are going to be unwell or suffer a critical illness or when you are going to die. So, its impossible to know in advance what is best.

I wanted to understand how many people out of a general population actually have critical illness cover, or whether most people have life assurance only. If the majority of people say "you'd be nuts to not have critical illness cover" then i'd be more inclined to go for it. Do most people pay nearly £200 pcm for insurance cover then and never speak about it being expensive? I've certainly never heard anyone say "i'll tell you what, life insurance is expensive!" which makes me think that most people don't have critical illness cover.

brokeinbristol

I have 6 months full pay and 6 months half pay with my NHS sickness policy if I was unfortunate enough to be off long term. Thanks for the advice though!

kingstreet

brokeinbristol wrote: »

I have 6 months full pay and 6 months half pay with my NHS sickness policy if I was unfortunate enough to be off long term. Thanks for the advice though!

I did actually say that your employee benefits being for twelve months will help to reduce the cost of the cover...

Twelve months, long term? Eighty-odd quid a week in month thirteen and beyond.

The average claim on permanent health insurance is more than six years.

We're talking about something which will safeguard your standard of living for your entire working lifetime.

I can understand someone being dubious about critical illness cover as the list of illnesses isn't exhaustive and it's more akin to a lottery win, repaying your mortgage and so on; not like unsexily just paying your bills every month for thirty-odd years.

Income protection would be mandatory in my imaginary world.

Weighty1

I'm with Kingstreet in saying that looking at Income Protection would be a good call. With a life or earlier critical illness plan in the event of a claim then all you are really doing is saving the expenditure which would otherwise go on the mortgage payments. You won't have anything else other than benefits once your nhs sick pay runs out.

If you looked at an income protection plan with a 12-month deferred period and which covered you only until the end of your mortgage the cost would be far, far less as has already been pointed out but in essence you are achieving the same ie. the ability to ensure the mortgage can always be paid/paid off.

Obviously, I'd also recommend you speak to an IFA/protection adviser to make sure you're getting the best arrangement