Mortgage and Insurance - Confused

Runningfast

Hi,

Just about to exchange on a new house and the mortgage advisor then brought up the subject of insurance and the different types. How the heck do you work out which insurance package if any is the one to go for?

I'm mid 30's and single. I work full-time and adhoc self employed. No kids, no wife or partner, in good health though I do participate in adventure/extreme sports such as Rock Climbing, Alpine climbing etc (which i declared and they are shown on the personal quotation I have received from the underwriter). Don't smoke, average weekly alcohol consumption is zero etc.

The options presented to me are as follows:

1) Life or Critical illness cover - Pays off the value of the mortgage (mid priced policy)
2) Critical Illness cover - Pays out lump sum (Most expensive policy)
3) Life Insurance - Pays out a lump sum (cheapest policy)
4) Income Protection - Pays a monthly salary for up to 5 years but after 5 years can reapply (2nd cheapest policy)

What do other people have and how do you work out which one is best or do people usually ignore these policies?

In my main job I am entitled to 6 months full pay and 3 months half pay for illness. I have been there 12 years so would be entitled to redundancy pay if I lost my job etc.

Thanks

foxy-stoat

I had nothing until I got married and became a Dad - just policy at pays out on death so the mortgage will be cleared and a few hundred thousand to !!!! up the wall.

As your single and no kids (at the moment) you may just want to have nothing, or a cheap life policy that clears the mortgage so either your siblings will have something, or the UK government.

Re-assess once you get a family though.

Runningfast

foxy-stoat wrote: »

I had nothing until I got married and became a Dad - just policy at pays out on death so the mortgage will be cleared and a few hundred thousand to !!!! up the wall.

As your single and no kids (at the moment) you may just want to have nothing, or a cheap life policy that clears the mortgage so either your siblings will have something, or the UK government.

Re-assess once you get a family though.

Thats what I was thinking, though I think of a guy I know who is younger than me and was diagnosed with cancer. I know he stressed about paying his mortgage etc. during his treatment and recovery phase. I guess critical illness or payment protection would have helped?

Half tempted to just get nothing and if I meet anyone in the future then reassess.

ACG

The best time to apply for any of these insurances is when you are in good health. If you leave it until your health is not so good you may find you are uninsurable or it is too expensive or there are exclusions - prime example would be if you were to be diagnosed with cancer, you would struggle to get cover to include cancer where as if you had the policy it may pay out (depending on the policy you have).

I am surprised the income protection policy has a 5 year payout, I would generally be recommending one that pays out until you return to work or the policy ends. But I suppose price may be a factor. The average payout on an income protection policy is around 6-7 years (over 10 times your sick pay period) if you look at claim statistics.

The way to look at these policies is what would happen....
If you were to die, what would happen? With no kids/partner I assume you are not too fussed about what happens to the house/mortgage?

If you were to get a critical illness which may or may not prevent you working again, what would you want to happen? Would you want to be able to pay off your mortgage? Would you be happy (and able) to move?

If you were unable to work due to any health issues, would you want a monthly amount to enable you to cover your bills/mortgage payments?

As a single person, I would strongly be looking at Income Protection. If you can not work, you have no partner to cover the bills/mortgage. If the benefits system does not pay you enough, you are going to feel the hit in income very quickly after going off ill. Even a 5 year policy would give you a buffer to make some changes to your life style if it was necessary.

Speaking personally (not as a broker), I am a similar age to you (34), I have Income Protection. I dont have life insurance but I do need to get some. I do not have Critical Illness and in all honesty, I have no intention of getting any. To me it seems like an expense at the minute I can live without. When my little girl goes to school and stops costing me an arm and a leg in childcare fees, I may reconsider but at the minute I am happy with what I have (or will be once I take out life insurance).