Life insurance questions

leypt1

Hi,
My partner and I are in the process of buying a property as tenants in common. Our broker has sent us some quotes for joint life/critical illness cover.
I think it makes sense for us to get joint cover, but wanted to check my reasoning? 

If I got an illness it would help me cover my portion of the mortgage and prevent my partner from having to buy me out/sell. 
If I died, it would pass onto whoever was named as beneficiary in my will - but since this is likely to be my partner anyway, it would still be helpful for him to receive an insurance payment.

A second question is - under our workplace arrangements we would both receive pension payments following termination due to ill-health, and four months of full contractual sick pay followed by four months of half pay (this goes up with more years of service). Does this negate the need for critical illness cover (which is very expensive and quite limited)? We'd still get mortgage protection life insurance.

Thanks very much for any advice!

dunstonh

A second question is - under our workplace arrangements we would both receive pension payments following termination due to ill-health, and four months of full contractual sick pay followed by four months of half pay (this goes up with more years of service). Does this negate the need for critical illness cover (which is very expensive and quite limited)? We'd still get mortgage protection life insurance.

Your pension entitlement will only be what has accrued to date or the fund value.  So, in the early to medium term it wouldn't be much.

Any particular reason why you are looking at CIC and life assurance and not PHI (income protection)?  PHI is usually the better option.  Not all mortgage brokers offer a PHI (the tied agents tend not to or just offer a basic version but the independents offer from the whole of market).

leypt1

dunstonh said:

A second question is - under our workplace arrangements we would both receive pension payments following termination due to ill-health, and four months of full contractual sick pay followed by four months of half pay (this goes up with more years of service). Does this negate the need for critical illness cover (which is very expensive and quite limited)? We'd still get mortgage protection life insurance.

Your pension entitlement will only be what has accrued to date or the fund value.  So, in the early to medium term it wouldn't be much.

Any particular reason why you are looking at CIC and life assurance and not PHI (income protection)?  PHI is usually the better option.  Not all mortgage brokers offer a PHI (the tied agents tend not to or just offer a basic version but the independents offer from the whole of market).

Thanks very much for your reply - we did think about income protection but we figured that contractual sick pay (which lasts for 8 months) and pension payments would do the job? The policies we looked at were only talking about 3-6 months of payments, so we figured better to pay for the big lump sum in case of death, than the small short term payouts.
Or have we misunderstood? 

mpochwat

What you mentioned makes sense.
Critical illness and life insurance will pay out a large lump sum is you get a critical illness or death. This can be helpful if one of these 2 scenarios happened in the short term.

leypt1

mpochwat said:

What you mentioned makes sense.
Critical illness and life insurance will pay out a large lump sum is you get a critical illness or death. This can be helpful if one of these 2 scenarios happened in the short term.

Thanks - we've got quotes for the full term and amount of our mortgage so it'll hopefully be the long term!

I've had a look at the income protection quote we got and it does only cover injury and illness, which makes me think that we wouldn't need it as our contractual sick pay arrangements are already generous.

The big question mark for me is redundancy - nothing seems to cover this, and I can't find clear information on my employer's pay arrangements (but I seem to remember it would be a pretty small lump sum as I've only been working there for 2.5 years)

I'm also not totally satisfied with the arrangements for termination due to ill health - it could be covered by critical illness but if not, it doesn't sound like I'd be entitled to much pension?

Weighty1

leypt1 said:

mpochwat said:

What you mentioned makes sense.
Critical illness and life insurance will pay out a large lump sum is you get a critical illness or death. This can be helpful if one of these 2 scenarios happened in the short term.

Thanks - we've got quotes for the full term and amount of our mortgage so it'll hopefully be the long term!

I've had a look at the income protection quote we got and it does only cover injury and illness, which makes me think that we wouldn't need it as our contractual sick pay arrangements are already generous.

The big question mark for me is redundancy - nothing seems to cover this, and I can't find clear information on my employer's pay arrangements (but I seem to remember it would be a pretty small lump sum as I've only been working there for 2.5 years)

I'm also not totally satisfied with the arrangements for termination due to ill health - it could be covered by critical illness but if not, it doesn't sound like I'd be entitled to much pension?

The average claim length on a personal income protection plan is just over 6-years.  In addition to that, the 3 most common reasons for claiming on income protection plans are mental health conditions, musculo-skeletal conditions and cancer.  Typically, only cancer is classed as a critical illness.  So, with your sick pay entitlement, what are you going to do once that stops and you could easily be off work for another 5-years?

You'll not find redundancy cover at the moment.  The whole market was pulled once covid hit.  Insurers just become too worried over massive losses and stopping offering it.  Even people who already had it in place weren't offered a renewal (life cover, critical illness and "proper" income protection are all long-term contracts so insurers can't stop these)

leypt1

Weighty1 said:

leypt1 said:

mpochwat said:

What you mentioned makes sense.
Critical illness and life insurance will pay out a large lump sum is you get a critical illness or death. This can be helpful if one of these 2 scenarios happened in the short term.

Thanks - we've got quotes for the full term and amount of our mortgage so it'll hopefully be the long term!

I've had a look at the income protection quote we got and it does only cover injury and illness, which makes me think that we wouldn't need it as our contractual sick pay arrangements are already generous.

The big question mark for me is redundancy - nothing seems to cover this, and I can't find clear information on my employer's pay arrangements (but I seem to remember it would be a pretty small lump sum as I've only been working there for 2.5 years)

I'm also not totally satisfied with the arrangements for termination due to ill health - it could be covered by critical illness but if not, it doesn't sound like I'd be entitled to much pension?

The average claim length on a personal income protection plan is just over 6-years.  In addition to that, the 3 most common reasons for claiming on income protection plans are mental health conditions, musculo-skeletal conditions and cancer.  Typically, only cancer is classed as a critical illness.  So, with your sick pay entitlement, what are you going to do once that stops and you could easily be off work for another 5-years?

You'll not find redundancy cover at the moment.  The whole market was pulled once covid hit.  Insurers just become too worried over massive losses and stopping offering it.  Even people who already had it in place weren't offered a renewal (life cover, critical illness and "proper" income protection are all long-term contracts so insurers can't stop these)

thanks for this - to answer my own original question, I think I had misunderstood what income protection does! We'd read on the money advice service that it paid for up to 6 months, but on inspecting our quotes it actually covers us until we get back to work, the policy ends, or we die! It also looks like we could defer payments until after our contractual sick pay runs out (but we need to properly digest the various quotes to understand whether this is the case)

on that basis I think income protection + life protection for the amount of our mortgage makes most sense. Do we also need critical illness?? Seems less appealing given how expensive it is.

dunstonh

thanks for this - to answer my own original question, I think I had misunderstood what income protection does! We'd read on the money advice service that it paid for up to 6 months, but on inspecting our quotes it actually covers us until we get back to work, the policy ends, or we die! It also looks like we could defer payments until after our contractual sick pay runs out (but we need to properly digest the various quotes to understand whether this is the case)

Income protection comes in two types PPI and PHI.   PPI type is not desirable and only paid out for short terms.  PHI is fully underwritten at point of sale but even that comes in many different levels of cover.  You could effectively pigeonhole them all into a budget, standard and comprehensive range. The budget ones being virtually useless or an option of last resort.

on that basis I think income protection + life protection for the amount of our mortgage makes most sense. Do we also need critical illness?? Seems less appealing given how expensive it is.

To give you maximum coverage you should have it.  It doesn't overlap with the others in what it does.  However, when you have to limit yourself due to budget, then Life assurance and PHI should be higher on the pecking order then CIC.

Weighty1

leypt1 said:

Weighty1 said:

leypt1 said:

mpochwat said:

What you mentioned makes sense.
Critical illness and life insurance will pay out a large lump sum is you get a critical illness or death. This can be helpful if one of these 2 scenarios happened in the short term.

Thanks - we've got quotes for the full term and amount of our mortgage so it'll hopefully be the long term!

I've had a look at the income protection quote we got and it does only cover injury and illness, which makes me think that we wouldn't need it as our contractual sick pay arrangements are already generous.

The big question mark for me is redundancy - nothing seems to cover this, and I can't find clear information on my employer's pay arrangements (but I seem to remember it would be a pretty small lump sum as I've only been working there for 2.5 years)

I'm also not totally satisfied with the arrangements for termination due to ill health - it could be covered by critical illness but if not, it doesn't sound like I'd be entitled to much pension?

The average claim length on a personal income protection plan is just over 6-years.  In addition to that, the 3 most common reasons for claiming on income protection plans are mental health conditions, musculo-skeletal conditions and cancer.  Typically, only cancer is classed as a critical illness.  So, with your sick pay entitlement, what are you going to do once that stops and you could easily be off work for another 5-years?

You'll not find redundancy cover at the moment.  The whole market was pulled once covid hit.  Insurers just become too worried over massive losses and stopping offering it.  Even people who already had it in place weren't offered a renewal (life cover, critical illness and "proper" income protection are all long-term contracts so insurers can't stop these)

thanks for this - to answer my own original question, I think I had misunderstood what income protection does! We'd read on the money advice service that it paid for up to 6 months, but on inspecting our quotes it actually covers us until we get back to work, the policy ends, or we die! It also looks like we could defer payments until after our contractual sick pay runs out (but we need to properly digest the various quotes to understand whether this is the case)

on that basis I think income protection + life protection for the amount of our mortgage makes most sense. Do we also need critical illness?? Seems less appealing given how expensive it is.

There's no providers that offer income protection which only starts paying after 8-months.  The closest matching options would be designed to pay after either 6-months (but wouldn't start paying out until 8-months) or 12-months so you'd have no income for 4-months.  Which you prefer would be dependent on your budget and how well you could cope without an income for 4-months.

I wouldn't say you don't need critical illness but the need is less if you have income protection in place.  Historically they've often been sold as covering the same need but in my mind they serve different purposes.  For example, imagine you and your partner both have income protection in place.  Suddenly you are diagnosed with cancer and need to undergo 16-months worth of treatment.  All the while you feel shocking, experiencing high levels of sickness, fatigue and just general horribleness.  Your income is protected so you've got an ongoing income, which is great.  HOWEVER, what does your partner do during this 16-months.  Do they still go to work every day so that their income carries on getting paid or would you/they prefer to be able to take time off to be with you and look after you as and when needed?  If it's the latter then the critical illness serves this purpose perfectly as the lump sum could help cover the income they lost if they had to take unpaid leave from work to care for you.  Obviously, that's on the basis that you are either happy in sharing a payout from your own critical illness plan with them OR you're happy that they take out a "life of another" plan so that they receive the payout if you are critically ill and you could then do the same.  In this instance, the critical illness wouldn't necessarily need to cover the full  mortgage amount but maybe a year or 2's worth of income. 

leypt1

Thanks both - plenty to think about here. We'll play around with quotes for various and come to a decision about what's most comprehensive vs. affordable month-to-month.
A final reflection from me is that it's a bit mad that there's a whole industry around something which should really be covered by an effective, comprehensive welfare system and national insurance contributions...but that's maybe a topic for a different forum.