Cancelling Life Insurance

HappyIdiotTalk

I need to reduce my monthly costs drastically while OH is out of work, well part time anyway. This might be for the next 2 to 3 years.

I'm cutting back everywhere I can and am considering cancelling my life insurance cover. I have one main policy that I took out on my first house that costs me £33.09 a month for critical illness, death and incapacity or something (they are posting me details, but have told me to expect a delay of 6 days). I also have a top up policy with same people for £28.01 that I took out a couple of years ago when we moved into a more expensive house. Thats £61.10 a month!

I'm 33, generally very fit and have never had any serious illness, and dont foresee anything adverse on the horizon. I know there is always the unexpected, but... to me this is a calculated risk that I'm willing to take to save money as I dont see it as anything other than a small risk.

But before I go for it, I'd value any opinions or advice anyone can give. I dont see myself as a person that likes risks (I choose fixed rate mortgages), but to me this is a sensible step, nothing to risky. Am I mad, or would you agree with me?

TIA,

HIT

lisyloo

Hi HIT,

The way you need to look at it is what would happen if you did die?

Could your OH (for example) sell your home and buy somewhere smaller? or will they be out on the streets?
Similarly for the other scenarios e.g. critical illness.

You need to consider what you are depriving yourself of.

For example if my OH was sick, we'd need to move to smaller house and have a smaller (or no) mortgage. We'd lose our dream home but we could still have our own house.

Insurance is a bit of a luxury.
It's for keeping a certain standard of living.

Provided you have family who love you it's unlikely that you will find yourself on the streets even in the worst circumstances.
More likely you will lose a higher standard of living.

If you can't afford it, then get rid of it. It's a luxury to insure a high standard of living.

I would advise you to check out what your employer offers.
Many employers offer death in service benefits (some with pension scheme), also many pay sick pay for 6 months.
Also don't forget that if one of you dies then the money you have tied up in pension funds will be used to provide either a lump sum or pension to the OH (make sure you've specified your wishes if not married).
If you are young this many not be significant but as you get a little bit older, the money in pension funds starts to be a significant amount.

I would say it's absolutely sensible to cut back on this.

simpywimpy

I just swapped my hubbys 50k policy (life only) which was costing £25pm and went through cavendish online as advertised by Martin and doubled it to 100k for just £3 a month more. Might be worth a look to see if you can reduce your overall spend rather than giving it up altogether.

Another thing to consider is that if you have had your current policy for a number of years it will be based on your age then rather than now and the same thing could end up costing you much more in the long run. I have had LI for years now and my 100k policy costs just £9.95 a month but I bet it would be double that if I started a policy now at 42.

Just a thought...

HappyIdiotTalk

lisyloo wrote: »

Provided you have family who love you it's unlikely that you will find yourself on the streets even in the worst circumstances.
More likely you will lose a higher standard of living.

If you can't afford it, then get rid of it. It's a luxury to insure a high standard of living.

Thanks for this Lisyloo, OH's folks are really nice people and are comfortably well off. Not rich or anything, but they wouldn't see their daughter on the streets, or our kids for that matter.

I hadn't thought of the insurance as being a luxury, but now that you point it out, I can see that it is. I'm still going to consider my options, but I feel surer at the moment that I want to get rid of it in the short term. A £60 a month saving is a hell of a lot more attractive than an insurance I may never need right now.

Thankyou very much for posting! :beer:

HappyIdiotTalk

simpywimpy wrote: »

Another thing to consider is that if you have had your current policy for a number of years it will be based on your age then rather than now and the same thing could end up costing you much more in the long run. I have had LI for years now and my 100k policy costs just £9.95 a month but I bet it would be double that if I started a policy now at 42.

Good point. We should be in a better financial position when I come to take some insurance out again though so will just have to bite the bullet! That said I dont think £60 is that competitive, so I'll probaby still end up with a cheaper product!

dunstonh

I hadn't thought of the insurance as being a luxury, but now that you point it out, I can see that it is.

Life assurance is not a luxury. 1 in 5 will die before retirement. Ok, that means 4 in 5 wont but 1 in 5 is still a risk that is worth insuring. Especially when you look at the consequences when one of you dies.

At 33, you are now entering the expensive times for things like PHI and CI cover. This is because you are unlikely to claim in your 20s but in your 30s the risks increase a lot.

If your budget has got to the point where £30 is not affordable then I would strongly consider considering downsizing as it wont be long for that £30 to be eaten up by other things that increase in price.

Looking to rebroke the cover is an option but make sure you compare like for like. The board has had many examples in the past where people have compared guaranteed premiums against reviewable or even worse, yearly renewable term assurance. If you bought from a tied agent before then you can expect significant savings. If you bought from an IFA then the savings wont be as much and may only be a few pounds. If you bought over 5 years ago then the reduction in price should help. Although you are now 5 years older and CI plans from 5 years ago (or more) have better cover options than current versions.

lisyloo

but 1 in 5 is still a risk that is worth insuring

Surely that depends on a number of factors, like whether you can afford it?

Especially when you look at the consequences when one of you dies.

I'm a financially independent woman with my own salary and no kids, so consequences are not that great at all.
Of course it does vary and for some people (especially those with kids) the comsequences can be much worse.
I wouldn't say that you can be black and white about it.

Luxury was perhaps the wrong word, but it's definitely a trade-off.

I would also say that bear in mind that CI covers a small list of illnesses and only pays a lump sum.
Much less useful than PHI which pays an income if you can't work (only a few illnesses excluded, most are covered).

dunstonh

Surely that depends on a number of factors, like whether you can afford it?

At 33, pure life cover is an insignificant cost. £100k is going to be around the £7 mark and if you cannot afford that then you really have to consider whether you should even have a mortgage.

I'm a financially independent woman with my own salary and no kids, so consequences are not that great at all.

The OP is whom I was referring to. Married, children and not a lot of funds now, let alone if one of them was to die.

HappyIdiotTalk

lisyloo wrote: »

Surely that depends on a number of factors, like whether you can afford it?

And thats the bottom line, I need to shed expenses and this is a big one I think I can do without right now.

HappyIdiotTalk

dunstonh wrote: »

At 33, pure life cover is an insignificant cost. £100k is going to be around the £7 mark and if you cannot afford that then you really have to consider whether you should even have a mortgage.

£7? Where are you getting that figure from please? I cant afford £61, but £7 I could easily cope with.

dunstonh

£7? Where are you getting that figure from please? I cant afford £61, but £7 I could easily cope with.

It would mean dumping the critical illness cover and taking out a decreasing term assurance for life cover only. Life assurance beats critical illness on a priority.