What cover / insurance should we have....?

[cloudybay27]

OH and I are trying to get better with our money in 2018! We have plenty of it, don't feel 'well off' but not definitely NOT poor and useless at managing it and want to be better.

We have some basic life and critical illness insurance (minimal) and I am wondering if anyone knows what we should be taking out to protect us against anything happening to either of us and being unable to work or leaving the kids parentless?

I have spoken to the insurance company we use but the policies they are recommending amount to over £350 a month which seems a lot. I am wondering what others do?

For context:

• We earn approx £6500 per month NET between us
• we owe £305k on mortgage, house value is 435k
• We are both mid thirties and would like to retire at 60-65ish
• No real debt other than mortgage but we seem to spend everything we earn....we do save approx £1000 a month when we can do
• We have 50k savings but looking to spend that on a house extension this year

Can anyone point me anywhere for advice or care to share how you 'insure yourself'

Thanks

I am not a Financial Advisor, and I am therefore in no way qualified to give advice on what you should do. I am, however, happy to tell you about what we do any why. Our financial circumstances are broadly similar to yours.

We each have a separate life insurance policy that covers the full amount of our mortgage - so, if something happens to one of us, it would be cleared. This is the single most important thing for me, and is non-negotiable. It means that the surviving parent wouldn't have a mortgage to pay on top of childcare - and in the event that we both died, our will specifies who will care for DD, and that she would be our sole beneficiary of both policies. This costs us around £50 per month.

We do not have critical illness cover. Personally, I wish we did, but it just wasn't affordable at the level of cover that I would have wanted - enough to clear the mortgage would have costs hundreds. However, we made sure that our life insurance would pay out in the case of a terminal diagnosis rather than on death. If you look again at your quotes, you'll probably find that this is the expensive bit. Decent life cover won't cost anywhere near as much as decent critical illness.

And that is everything we have. It is all about what level of risk you are prepared to take. DH and I are both fit and healthy, we eat well and we exercise and we're non-smokers and low to moderate drinkers. We don't have a family history of serious illness. That doesn't mean that a life-changing disease couldn't affect one of us, and it doesn't mean that one of us won't be in a serious accident, but our risks are lower than they would be for many other people. So to me, it is an acceptable, if not entirely comfortable trade-off not to have critical illness cover. Other people may look at the same circumstances and make a different call.

Hope that helps.

I pay £10 pm (before tax) via a work benefit for critical illness of £250k for actually quite a lot of illnesses listed . I am in my 30s like so would imagine it’s more if you were older but £350 ok seems extortionate!

The first thing to do is check if you are already covered, before paying for additional insurance. Your mortgage agreement may already include a life insurance element, so it will be paid off if you die. You may also have life insurance through work (death in service).

When I was a SAHM we got a life insurance policy for me, as I obviously wasn’t covered through work and DH would have had to pay someone to care for the DC in the event of my death.

We don’t have critical illness cover, although as a pp said perhaps we should.

Thanks Amber, we don't have cover through work (self employed) but I will check the mortgage documents now.

We have a policy that pays out 2 or 3 k per month until the kids are 18 should one of us die to pay an amount in lieu of dh wages or a nanny (I am sahm).
Not sure what this is called!
As well as some insurance on the mortgage and critical illness! I am also well covered by his work policies.
I was diagnosed with a heart condition last year. However despite my husband triple checking with the consultant it did not trigger critical illness cover!

What type of mortgage are you on? Interest only/repayment etc?

Repayment you’d be more than likely better off with a decreasing term assurance policy - interest only you’re better with a full with-profits endowment (this includes life cover)

With your critical illness although more expensive you are better off choosing one that does not lapse once a claim is made, but one that allows the policy to remain in place for further claims although most would then have conditions attached to future claims.

As long as the cover matches the mortgage amount you would be okay, hence asking what type of repayment you are on (eg decreasing with reduce the value in line with mortgage balance reducing - meaning a lower premium, a level term (same cover throughout) is a lot more expensive but will provide surplus) however ours is set up for mortgage amount plus additional amount to cover anything else that may arise.

An independent financial advisor/broker would be able to look across the market for you but would normally charge a fee - I am not an IFA but am CeMAP qualified so I know a lot of the basics

Hope that helps

Oh and with you/partner been self emp it would be practical to set up income protection.

MPPI would cover you for accident/sickness/unemployment although the unemployment would not apply if self emp as usually specified to involuntary redundancy that’s why I mentioned the income protection. Income protection will generally pay for an uncapped period of time until you either retire or are able to return to work and if you have to return to work on reduced hours down to the accident for example or a lower salary level many will pay a proportional payment even though you are back at work and you can make as many claims as needed - not usually the full salary payment but around 60-70% of it so enough to cover bills. MPPI is the cheaper form however many policies cover you for a max of 2 years and have a deferred period before paying out on a claim. Sorry for all the separate posts I didn’t want to make a really long one haha!

Thank you Bigpizza.

We have a repayment mortgage, 26 years left. I have just checked and it does not include any insurances (i now remember our mortgage before did do which is why this has come as a bit of a surprise as I assumed we had it but must not have taken it out when we remortgaged last year...thankfully no one has died!)

Anyway I am now looking to take out life insurance and the income protection insurance, I think that is all we can afford for now and I realise a lot of conditions are not covered with critical illness, however the IFA i spoke to earlier did say you can set up critical illness at a much lower level payout so that might be an option.

Next question is where do I go to find the best deals for this?

Also am I right in thinking it's better to have individual policies for this an not a joint one? We are not married however have up to date wills so all transfers to the other if one of us dies.

Decreasing term would be your cheapest option at life insurance to cover the mortgage then, like I said it reduce the cover in line with the mortgage owing so it will be repaid in full, you just wouldn’t get anything additional if that makes sense.

Single covers would pay out whenever that insured dies, and you can set up joint covers either as joint life first death - so it pays out when the first dies or joint life second death so when the surviving person does, that’s generally cheaper as it will generally be a lower amount owing by the time the second person dies however it would depend on if you could both afford to make the repayments for mortgage/bills/insurance if you was the surviving person if it was set up this way. (We have a joint life first death cover, and I also have my own cover set up but that’s not linked to mortgage and that’s to go to my son (previous relationship)

Yes you can set up critical illness for a completely different figure to mortgage so that could pay for treatment/ a spending blow out or to reduce mortgage amount etc and then you could have the life cover to insure mortgage amount. That would mean premiums would be lower but you do have peace of mind that if you were diagnosed you’d have a lump sum to cover what was needed. Not all critical illnesses are terminal. The cheaper policies tend to cover only 7 or 8 main diagnosis’s and some or the more expensive cover 40-50 so worth looking into what the policies actually do cover.

Unbiased.co.uk is a free site that has a lot of information about different covers but for something important like this I would recommend seeing an IFA, the fee might seem a lot now but if you get a good one it will work out better than been short through underinsurance if it’s needed.

To get quotes you can look on compare the market and you can look at life, critical illness, A/S/U etc

Thank you, I have also emailed our mortgage advisor who offers insurance advice so hopefully that will be useful.

Yeah they will have all your mortgage accounts so they can see exactly what you need to cover and can discuss future plans such as overpayments/early repayment etc to advise on an insurance that would be suitable.

Unfortunately I’m only qualified in mortgage advise not the insurance and investments but hopefully what I’ve said is some use to you x

Advice*

Your mortgage adviser should be able to help. Good for you for tackling things head on, so many people don't, assuming it will never happen to them.

We don't have enough cover but with pre existing conditions its just too expensive- but we have ten times my husbands salary for his life assurance, and for mine enough for the mortgage, funeral and enough to give my husband a cushion (about six months of his salary) to treat the kids, take some time off work etc

As well as the insurance, can I suggest taking a look at this:

www.moneysavingexpert.com/family/money-help

If you want to make all your money work better for you. You say you have plenty of money but don't feel well off, although you have managed to save £50k, so obviously don't spend every penny you earn.

It's always worth trying to keep saving, in case the extension costs more than you thought, or either of you takes a drop in income/reduction in available work, it will be invaluable to have savings to live off if needed. it's a form of self insuring, and the advantage is that, if the bad thing doesn't happen, you get to keep the premiums.

Thank you Barbara, I would like to take the credit for saving 50k...but the truth is we didn't, we remortgaged to afford the extension. We have saved about 10k (took 40k from mortgage) and in my life previously I've saved various amounts for maternity leave / holidays etc. We can save but don't do it unless something is definitely happening (it's not our default).

We save a bit for the children, we have about £2000 in their accounts and I tend just to put some in at Xmas / birthday etc but it's not 'planned' and i would like it to be so.

I started well yesterday by cancelling three sign ups I no longer need / use. Will move on to lowering bills etc soon, we have stopped the weekly online shop (pricey) and are shopping less and more cheaply. I know we can save money, just find the time to organise all this stuff is never available but we will get there!!

We had critical illness/death policies separately. My husband had death in service x4 and we had a very small endowment policy. With all that it was enough to comfortably pay off a small mortgage, and leave a big cushion but I was stay at home mum and have taken sometime to get back to work, and will never earn anything like my husband. Widows benefit stops when the children leave school, so the cushion will take some hammering whilst they go to uni. And I have negligible pension. Do you both have similar earning potential? Insure more for the person who would be less well off.

Also, state widows pension now only pays out for 18 months, I think, rather than from 0 to 18, which would have made a big difference to us. Well done for thinking about this now. So, so glad we did. The unimaginable is pretty crappy already without having to panic about finances!