How Much Should My Life Insurance Be?

Biomech

Sorry, I know there are many variables, but I just wanted to get an idea of whether I'm being ripped off and/or if I need it

My life insurance is currently being paid at £70 a month, which seems very excessive to me.

My situation is;

Single man, 35, company director, no kids.
I have a mortgage of around £145,000 on a 3 bedroom house and I live alone.

I smoke 20-30 a month (and happy to stop).

No history of disease. My mother had breast cancer and my father has diabetes. Nothing else. I'm not obese, I have no heart problems.

I have had depression and anxiety in the past.

I own my own company and on paper am employed part time (PAYE).

I got the life insurance when I got the mortgage last year. It was my first mortgage. The idea being that as cancer is so prevalent these days, should I get it, the life insurance will pay off the mortgage. (or any other life threatening illness)

I want protection incase I fall on hard times, I don't want the house taken away and everything I've put in.

But at the same time, £70 a month is a lot - and that was £80, I knocked it down by removing global medical cover.

What do you think? TIA

Biomech

If I could follow this up with, how much cover do I need?
I'm looking at quotes and they're asking how much lump sum cover I need.

How do I calculate this? Is this 30 years of wages plus the mortgage and any debts? Is £1million an appropriate sum or are we talking more like 200k? (lets assume I'm on 20k a year salary)

TIA

... sorry I don't get this. So at £30/month it's saying I get £40k cover over the course of 30 years. If I put in total of £800k it's saying it will cost £580 a month for the next 30 years

Aretnap

It sounds like you're not quite sure what sort of insurance you have - you talk about life insurance, but then talk about wanting to be protected if you fall on hard times. Life insurance doesn't do that - it only pays out once you're dead (or sometimes when you're terminally ill and the doctors have given up on you). It's not obvious why you'd need life insurance at all if you're single and have no dependants - who are you planning to leave the money to?

I suspect that you actually have critical illness cover, which pays out if you're diagnosed with one of a pre-defined list of diseases, whether or not they prove to be fatal. It's often bundled together with life insurance, but it's the critical illness cover which is the expensive part - and the more relevant part if you're single with no dependants.

Don't know whether you're overpaying as the price will depend on your own circumstances, except to say that if you bought it through your bank at the same time as you took out the mortgage then there's a fair chance that you're paying too much - banks are generally an expensive way to but cover. Most of the main comparison sites have a tool for comparing life and CI cover - you can get a rough idea of what you should be paying there.

An alternative (or addition) to Critical Illness Cover is Permanent Health Insurance. Rather than paying out a lump sum when you get ill, PHI pays a monthly income for as long as you're unable to work - whether that be for a few months or 30 years. Personally I would rate it as more important than CI cover for that reason - paying off your mortgage in one blow is a nice thought, but if you then have another 30 years in which you can't work then that £145K isn't actually going to last you very long. Also it will pay out regardless of the illness you're suffering from (subject to any exclusions based on your medical history), whereas CI cover only pays out if you get one of a pre-defined list of conditions, and if your illness isn't on the list then it's tough luck.

Biomech

Thank you for the reply.

You're right, the trouble is, I live alone, I work alone, not a lot of support or people to ask about things like this (hence why I'm here). I'll dig it out and have another look through it.

I have all kinds of insurance, home insurance, "life" insurance, car insurance, 2x van insurance, bike insurance, Public Liability Insurance, Professional Indemnity Insurance, Acting Insurance... and most are just a con anyway!

I like the sound of your PHI though, that sounds quite good.
May I ask what, if any, you pay for life insurance/CI? Just to get some kind of idea

Chris_Pollard

Bio, it's possible for you to obtain quotes from comparison sites to understand the premium levels. As the previous poster says, Income Protection (IP) is perhaps something to consider, and is often overlooked. if you were incapacitated and couldn't work, when would your income cease - and if this happened, how would you pay the mortgage, and the premiums for your insurances?

I know some people are happy to spend the time working out their own insurance options and needs, but I think you would do really well to seek out a financial adviser, one who will review your financial situation holistically, for example, looking at pension/investment provisions, whether as a Company Owner a Relevant Life Plan might be a good option as well as reviewing your "illness" protection.

Advisers are able to help with pensions, investments, personal and business insurance. They are qualified and expert in this, and it's what they do day in-day out. Nothing wrong with wanting to sort your own affairs out the look on the face of my plumber when I tried to sort something I wasn't expert in myself was priceless - well actually, no it ended up quite expensive!

Try unbiased.co.uk to pull up details of advisers you can contact who'll look after you....

Chris_Pollard

PS - for clarity, I'm not a financial adviser

Biomech

Thanks.
The thing is, people like finanical advisors make their money through commissions and getting you to buy into investments and things right - what's to stop them ripping me off as well? I went through 5 mortgages until near completion for my house, each one authorising the loan and saying everything was perfect, they took the fees, took the inspection thingy which ran at hundreds, then cancelled the offer just before I signed. 5 times in a row that happened with different banks.

The insurance I got was on a recommendation of my mortgage advisor. Who had been really nice and really helpful and I would never have got the house if it wasn't for their more than required hard work (even 1am I was getting texts). But then here I am paying £70 a month on something I might not need.