Critical illness and life insurance cover

havingaball74 · 17 August 2018 at 8:53AM

Hi all,

I have existing CIC with life insurance. The life insurance was added because my broker said it was cheaper to do so at the time. I don’t really need the life insurance as I get a death in service payment with my job and, although I live with my partner, we don’t have children.

I’ve read that the CIC cover should be enough to cover 3 x annual income + any debt. Is this right? Is that gross or net income? I’m trying to see whether I can reduce the cover in any way as it is becoming increasingly expensive.

My insurance increases with inflation but I have been advised to change it so that the payments stay the same and does not increase in line with inflation. Does this make sense or should it be a decreasing term as my mortgage balance reduces?

I have around 15 years left until retirement and have an emergency fund/cash savings/ISA investments.

Thank you for any advice.

dunstonh · 17 August 2018 at 10:32AM

I!!!8217;ve read that the CIC cover should be enough to cover 3 x annual income + any debt. Is this right?

its a matter of opinion. i have seen 10x before although 4x is a common figure. It really depends on how much you have in savings.

Is that gross or net income?

Its not that accurate. Its a guide to the minimum.

My insurance increases with inflation but I have been advised to change it so that the payments stay the same and does not increase in line with inflation. Does this make sense or should it be a decreasing term as my mortgage balance reduces?

Indexed plans are better as they give you inflation proofing. £100,000 will be worth around £65,000 in 10 years time. So, if you dont index the cover, you will suffer inflation erosion.

Weighty1 · 17 August 2018 at 10:40AM

I've just done a quote this morning where adding life insurance to a CIC policy (£30k in this instance) made 43p difference to the premium (£23.57 > £24.00) on that basis it can offer very good value for money even if not absolutely necessary.

There is no set figure in respect of how much CIC is needed. It's dependent on what you would need the money for. If it's to cover lost salary then you'd have to consider worst case scenario and imagine never working again. Obviously, if it was a claim for something like a heart attack then potentially you may only be off work for 3-4 months, if that.

havingaball74 · 24 August 2018 at 10:50AM

Weighty1 wrote: »

I've just done a quote this morning where adding life insurance to a CIC policy (£30k in this instance) made 43p difference to the premium (£23.57 > £24.00) on that basis it can offer very good value for money even if not absolutely necessary.

There is no set figure in respect of how much CIC is needed. It's dependent on what you would need the money for. If it's to cover lost salary then you'd have to consider worst case scenario and imagine never working again. Obviously, if it was a claim for something like a heart attack then potentially you may only be off work for 3-4 months, if that.

Thank you to you both. Two questions:

I have a stocks and shares isa. As this involves risk should it be discarded as ‘savings’ when working out how much I need?

Would you agree that it is better to have it increasing in line with inflation although my mortgage debt is reducing every year?

Weighty1 · 24 August 2018 at 11:04AM

Again, it depends on *why* you are taking out the critical illness cover and what you are wanting the money to be used for in the event of a claim. Look at the need and then arrange it accordingly.

Need 1) Protecting the mortgage
Need 2).....For example, this could be providing a lump sum which would allow you to adapt the home if necessary. If this was the case then you'd typically index-link the cover because the cost of adapting a home would increase over time as building costs increase with inflation.

Trying to cover multiple needs often results in either a more expensive solution being taken out or being underinsured. It rarely provides the best possible arrangment.

Critical illness and life insurance cover

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