life insurace versus death-in-service

Barbsy

Hi everyone


I'm taking out a mortgage at the age of 54. I have three kids (14, 18, 20), am separated and have a permanent job with regular income. I also get 6 months full pay and 6 months half pay if I am sick. I also haven employer pension which offers a death in benefits package. If I die my children get 3 times my salary in a lump sum. My IFA is suggesting I get life insurance/critical illness cover and income protection. I feel I might be over insured and paying out too much for cover I do not need. Please advise re:


1) that I get life insurance/critical illness cover - I feel that my employment pension covers me for what this life insurance policy would cover me for. My pension death-in-service benefit is a lump sum worth 3 times my salary which the children could use to pay off my mortgage and theyd still have £91,000 left to divvy up between them; the children would also get my pension til they are aged 23 (I'm separated). They would also be able to sell the house and keep the proceeds. Advice?


2) that I get income protection because mine is the sole income to pay bills etc. However, is it worth getting this and critical illness cover? I know one is a lump sum and the other is a regular monthly payment...…


I'd be paying out £180.00 per month for life/critical illness cover and income protection as well as having death in service benefits....is it worth it?
Many thanks

Tom99

Is it worth it? Hopefully no, you will never make a claim, but there again maybe you will.
Personally I would rather pay an extra £180 per month off the mortgage.

lisyloo

Personally I would not get the life insurance if you think you have enough elsewhere to cover the needs until your kids are old enough to look after themselves.

Personally I’m not a fan of critical illness. It’s a lump sum for only certain illnesses. This might be useful for private treatment, house repairs or bucket list trips but in most cases it won’t replace the remaining income for life. That could be different in your case as your 54 and closer to retirement than someone in their 20s but it’s still limited to certain conditions. I therefore put this in a discretionary and luxury category.

Permanent health insurance is useful to cover an income until retirment.
Personally I’d probably take a punt if in good health and decent pension fund and not get it as you are not that far off an early retirment anyway. You need to consider how your manage if you were ill and could not work again. We don’t know your pension arrangements but if they were good then personally I wouldn’t get it. I have bought it for myself privately before but when I was in my 20s/30s and then the “rest of your working life” is much longer.

Weighty1

Firstly, death in service isn't guaranteed. It could be reduced, taken away or be lost if, for example, you fell long term ill and had to give up work.

Whilst 6-months full pay 6-months half pay sounds like a long time, LV report that an average claim on an income protection plan last 4-years. Other insurers used to report claims on average lasting over 6-years. Your limited benefits would be of little use in the event of long term ill-health.

Personally, I think anyone who doesn't protect their income is taking a big chance as this is the plan which is most likely to be claimed upon. I'd also imagine that the critical illness is pushing up the cost a lot so if this was me and budget was a constraint I'd go for income protection and life cover, with maybe just a few (£15-20k) thousand of critical illness to provide money for immediate cash needs. That's just me though and I know my personal circumstances in far more detail than yours.

Askalaba

Barbsy wrote: »

1) that I get life insurance/critical illness cover

Your death in service will only pay out if you're still working. There's always that small risk you're unemployed and then pass away leaving your family with nothing (fingers crossed this doesn't happen though)
If you think you don't need life insurance then you could always get standalone critical illness cover. This will pay out if you get a defined critical illness in the T&C's of the policy (eg cancer, heart attack, stroke etc) but won't pay out on death. This may be a little cheaper (I'd guess 5-10% cheaper) than Life/ critical illness (which will also payout on death)

Barbsy wrote: »

2) that I get income protection because mine is the sole income to pay bills etc. However, is it worth getting this and critical illness cover? I know one is a lump sum and the other is a regular monthly payment...…

Yes, get both! They serve different purposes. If you get a critical illness you could spend the payout on a cruise or doing your house up to fit your new needs.
It would be over insuring if you get a deferred period less than one year, as you're employer already covers this. I think an income protection policy with a deferred period of more than a year should be ok.


I don't understand how so many people live without protection insurance