Life Assurance vs Critical Illness vs Income Protection

DD265

We're in the process of buying our first house and will need one or more of these insurances, but I'm not sure what I'm looking at and I feel like my mortgage broker is trying to sell me something.

Some probably useful info: Married couple, both 30, non smokers, fit and well, no children/dependents. I earn more than my husband and truth be told could probably manage the mortgage and bills on my salary. My husband would struggle on his current salary but could probably manage the bills; he has the potential to earn more when he changes job next year. We can't self-insure right now (house buying is wiping out our savings) and I wouldn't get anything above statutory sick pay if I'm off work ill.

I am certain that we want something that will pay off the mortgage if either of us die, but I'm a bit uncertain beyond that, so some questions:

1) Level term life assurance vs mortgage life assurance - generally worth the additional premiums?
2) Income protection vs critical illness vs both?
3) Is it generally more cost effective to add CI/IP to the life assurance policy than to have two separate policies?

Weighty1

IP cannot be added to a life insurance policy, only CI can have integrated life insurance.

In an ideal world I'd say you *should* have all 3. For example, imagine you are diagnosed with cancer. This stops you working for 2-3 years. The income protection covers your lost income but is your husband really going to want to be going to work on a daily basis to still bring in his income or would it be preferable for him to take unpaid leave to be taking you to appointments and generally looking after you whilst you feel dreadful?

If push came to shove I'd say the IP is more important than CI but they both have very definite uses and the 2 most common CI claims (heart attacks and cancer) don't necessarily lead to massive lengths of time off work so if you only had IP and one of you had a heart attack you can bet your bottom dollar that you'd wished you'd had CI to receive a lump sum. Conversely, if you had a longer term illness you'd probably want the IP as it's just not feasible to insure lost income throughout your full working life with a critical illness policy.

ACG

The simple way to look at this:
If one of both of you were to pass away, would anyone be worse off and need some financial help?
If one of both of you were to be diagnosed with a critical illness, would you need a lump sum of money. A critical Illness varies from say cancer which you could fully recover from and be back in work 2 months later through to a stroke which may mean you need private care/wheelchair ramps building and so on.
If one of both of you were unable to work due to accident or ill health, would you need some money coming in each month to cover the bills/mortgage?

It is not necessarily a case of taking out cover to protect 100% of everything. A good example being your income may be £2,000 a month after tax. Your bills/mortgage may be £1200 a month. So if you were unable to work, you may only need £1200 a month cover everything, that will help to keep the cost down but also ensure you are not being kicked out of your home.

Critical illness may be a case of say £50k cover rather than enough to pay your mortgage off.

If it makes you feel any better, we (brokers) have an obligation to discuss insurance. I hate talking about it because I feel like a dodgy insurance salesman. But at the same time, I would rather discuss insurance now and you not want it rather than in 5 years when you need it and ask why we did not discuss it.

DD265

Thanks both. I will get some quotes for the various types, including some lower levels of cover.

BooJewels

As someone who has just had a critical illness payout (well. my husband) and has spent the last few weeks considering our financial situation, moving things around, consolidating and considering our future, I would highly recommend buying the very best cover you can stretch to.

Your really big advantage right now is that you're young and fit now - so your health situation is locked in for the life of any policies you take. A single dodgy blood test or a few high blood pressure readings could suddenly prevent you from securing or extending suitable cover, make it more expensive, or place limits on the cover.

The fairly modest payout we had earlier this year was certainly very important and has made quite a difference for us already, but we seriously wish we'd taken out better cover in terms of type and value when we could. It has certainly been life-improving, but not life-changing. My husband will still need to return to work soon, after some recent treatment - but better cover might have allowed him to take a much lighter job, shorter hours or even early retirement. We tried to increase the cover we already had in 2013, but he already had enough is his medical history to be turned down and we were limited to what we already had in place - which has now run its course.

So please don't limit yourself to 'lower levels of cover' if you can possibly afford more. I sincerely hope that it will prove to be a total waste of money for you. But if the worst happens, you'll be very, very glad of it.

kidmugsy

The best internet writer that I've found is this chap:

http://monevator.com/life-insurance-and-protection-a-primer-or-why-you-should-buy-renewable-term-life-cover-most-of-the-time/

http://monevator.com/do-you-need-income-protection-insurance/

http://monevator.com/family-income-benefit-the-forgotten-policy/

DD265

Thank you! So, have I got this right?

Mortgage life insurance: lump sum to pay off the mortgage if one of us dies

Life insurance: lump sum if one of us dies

Critical illness insurance: lump sum if one of us can't work due to illness

Income protection: monthly payments if one of us can't work due to illness

Family income benefit: monthly payments if one of us dies

I think we would each want a lump sum in death which would be at least enough to pay off the mortgage. Then, based on current circumstances, I think I would need income protection. I feel as though critical illness and family income benefit are nice to have but perhaps not essential. Of course, it'd be cheaper to take out the policies now than down the line... I need to get some quotes.

BooJewels

DD265 wrote: »

Critical illness insurance: lump sum if one of us can't work due to illness

Not necessarily - you just need to have a qualifying medical condition and meet the terms of the policy. It may even be a condition you fully recover from. You don't necessarily have to be unable to work in future.