Life insurance/critical illness

[firstlittleone]

Help please!
DH and I are 28 & 26, we have a DS who is 5 months old and a mortgage of around £210k. We both get death in service and full sick pay for 6 months.. any advice on how much cover I should take out?
I’ve tried to speak to a financial advisor but they always seem to make it so much more confusing!

At a minimum, you would want enough to pay off the mortgage. If there might be difficulty with the surviving partner maintaining bills, you might want to get increased cover to give an extra lump sum to ease financial worries.

My situation:

Mortgage of 250k
Death in service benefit of 210k (me) and c. £100k (DH)
Critical illness benefit of 150k (me) and £100k (DH)
Six months full discretionary sick pay through work, then mine is topped up to 75% after (via work protection), DH gets another six months at half pay

We recently took out life insurance which would pay £250k on each death, payable until we were 70. This costs us just under £30 a month.

I tend to joke that if I snuffed it, my DH would be sitting extremely pretty! If both of us died, our DD would well looked after.

@Alarae do you have separate policies or joint?
whenever I’m putting in for critical illness for anything over £40k the price of the cover sky rockets?

Do you currently have no insurance cover for your mortgage? It used to be called Decreasing Term Assurance and the amount you would receive goes down as the mortgage is repaid.
It also used to be a standard requirement on non-endowment mortgages from lenders.
At your age, simple life assurance is relatively cheap, so I would favour ensuring the mortgage is covered and going for say a sum of £500k-£1m pure death cover up to say retirement age so that in the unlikely event of one or both of you dying, financial worries would be minimal.
Don't forget your death in service is directly linked to your job and ceases if you were to lose that job.
You could also consider having this written in trust for your DC as the beneficiary although I didn't do this myself.

Bear in mind that if you change job, or have to leave for any reason (SAHP, long term ill health) the death in service disappears and/or you may not have the same cover in a new job. For this reason I would largely ignore the fact that I had it when taking out insurance. You can also lose a job at any time.

For that reason I would make sure that at a minimum I had enough life insurance to pay off the mortgage and at least a year’s worth of bills covered and preferably two. Life insurance is cheap.

I would second having critical illness insurance (enough to pay off the mortgage cover at least a couple of years of bills).

More expensive but worth considering is income replacement insurance which tops up your income if you can’t work, or can work, but not at the level you are used to.

I know people who have benefited from all three types of insurance (I’m one of them). You don’t want to be worried about money when your are seriously ill or bereaved. If the worse happens and you are still covered by death in service, that’s a bonus.

We have single policies, as that means the £250k gets paid out on each death. With a joint policy I think both of you need to die to get any payout? It was more expensive to have singles but wasn't that bad (£30ish). Our premiums will never change either, so it's always better to get cover the younger you are as it gets expensive with age.

Should have mentioned that I get critical illness through my work to cover both of us, so that's not a fair comparison! I think it costs me around £20 a month for that level of cover but I appreciate that will be a lot cheaper than the open market.

I had life insurance and critical cover. I don't know why but we took it out separately. So pleased we did because when i divorced I kept paying it.

I was diagnosed with cancer last year. It was such a relief to be able to clear my mortgage and have money left over.

As it turns out I have been able to continue working. I have sis months full pay sick leave then six months half pay. I also have death in service.

My DC are both early twenties. But I feel happy knowing house is paid for and they would have a lump sum to be able to sort themselves out with if anything does happen to me.

At time I nearly cancelled the policy. Particularly in the early days after the divorce. So pleased I didn't.

This is not perfect but it may help give a starting point for what you need in terms of protection insurance.
Google Sheets - should create a Copy which you can enter your own figures in:
https://docs.google.com/spreadsheets/d/1u0drVbMLi5QS5GWtYJCq51VkJNybV2ETmPTd_ell9d4/copy
This is from Season 14, Episode 2 of the Meaningful Money podcast and is also being talked about on the podcast coming up on 21st June 2023.

A joint policy would usually pay out on the first death and then you would re-do cover for the surviving person.

Can you be specific as to what is confusing you? Did you tell the advisor that you didn't understand?

I generally have as much cover as I can afford to pay for around life and critical illness - income protection / unemployment cover not so much

FYI - joint cover is set up as a joint policy, first death so it pays out on who dies first but it leaves the remaining person with no cover

@CCSS15 yes I told the advisor I wasn’t fully understanding what he was going on about. Unfortunately it was all over the phone whilst sorting the mortgage and being 7 months pregnant! I think maybe I might need to revisit with an advisor - the mortgage protection I feel as though I get it.. critical illness is a little more mind boggling

We took our mortgage out in 2001 with critical illness cover. Prices were very different then and it was affordable. I got diagnosed with cervical cancer in 2005 and our policy paid out. It was life changing for us, we didn’t pay down our mortgage which had increased a bit as we moved after taking out the critical illness policy but it afforded us extending our home and helped at an incredibly awful time. If I hadn’t survived it would have paid off the majority of our mortgage which would have been a help for DH as we had very young children at the time.

No one thinks they will need it and it is a cost benefit analysis but for us it was worth every penny. To give context though, the cost was £25 a month on what was a £90k mortgage.

We pay £21 a month for 200k of joint cover (pays on the first death). We have already held it 13 years. Ours is called level cover it doesn't decrease it stays at 200k and expires when my husband (eldest) is 72. We don't have critical illness - but I agree with the posts it is very worthwhile.

Our youngest has special needs and I think if myself or my partner died it would be very hard for the remaining partner to work (we couldn't do our current jobs as we are each other's child care and I do nights and he's out 7-7 on his days at work). So the money would be vital as both incomes would be lost not just one.

Bear in mind your circumstances could change e.g. a future child that has special needs or one of you gets a condition that makes insurance more expensive or uninsurable - while you are young and healthy is the cheapest time to take adequate insurance.

Hi @firstlittleone - what is it about critical illness that you find confusing?

I was an Underwriting/Claims Manager for life/critical illness/IPB insurance for 14 yrs so I might be able to help?

Based on what I've seen over the years, critical illness really is one of the most valuable types of cover you can get. You can get either single life policies or go for a joint policy if you want to reduce the cost.

@SpidersAreShitheads im confused of how much I should be taking one out for? People say x amount of months/years salary if you can’t work due to an illness but for 2 years worth of salary it seems to be ££ compared to what others are paying