Life insurance less than mortgage term? Possible

[Dreamingofthishouse]

So took out a mortgage on 25yr term, DO NOT intend to have it for 25years and would be keen to overpay/ reduce years over the next few years when childcare bills ends. When doing our life insurances we were told it was for the mortgage term but found out from several people than they didn’t cover the full term. There would be approx £20-30 saving per month for having insurance for 20 years not 25years but mortgage advisor is getting on like this is the worst idea ever and all but refusing to do it. We will definitely pay extra/ reduce mortgage term to least most 20yrs and overplaying is planned for . I’d like to save the £360 per year ( 1200 minimum for 5yrs) now and only have the plan for 25yrs. Is this a done thing?
also the critical illness aspect is for full mortgage about- someone else suggesting capping it to reduce costs?sensible?
basically want to reduce our insurances monthly as current quote is £160 for my HB and I ( no illness, 1 Minor declarion but we are both over 40 !) which I think is a lot!!

There’s no requirement to have critical illness cover and do you get death in service benefits at work, assuming you do there’s no need for life insurance either.

The mortgage adviser’s commission is the thing driving their advice. I’d speak to someone independent.

I would see an independent advisor. Also, could you do separate policies? When I separated from my EXDH we were on the same policy. This proved costly getting a new policy.

For me critical illness was essential. After watching a friend loose her husband to cancer and only having life cover meant that in the two years of his illness there were many unnecessary money worries because the policy only paid out upon his death.

It’s not a requirement. I am sadly denied life insurance. Doesn’t stop me taking new mortgages.

There's no requirement to have life insurance or critical illness cover at all. Your advisor is thinking of their commission, which a hefty chunk of your premiums pay for.

For the last 10 years of our mortgage, we didn't have any insurance at all - the initial policies ran out and we didn't bother getting any more, and if the worst had happened, we would have been fine. Our outgoings were small, I was the major earner and had very good sick pay and pension entitlements from work and if anything had happened to DP, I could pay all the bills myself anyway even if I needed to take time off work to care for him etc.

Have a look at what Moneysaving Expert says about the subject

https://www.moneysavingexpert.com/insurance/cheap-life-insurance/

Your advisor 'all but refusing' to take you on has probably done you a favour, as you can now do some reading of your own and buy what you need directly or find someone else for a second opinion.

If you do decide to take out critical illness cover, make sure you understand what it covers and if you have good sick pay at work, you could reduce the cost by having a long excess period. Eg if you get 6 months full pay, you don't need your insurance to pay out after a month of being off work.

We have a decreasing cover that covers the cost of the mortgage for the full term, as it's decreasing it's a pretty cheap policy. We then have separate cover which lasts until our youngest child is 21 with the intention of being the dead parent's lost wages (plus extra, sorry that sounds quite blunt but is the truth of it!) and we each have separate policies from each other rather than joint so if we were to die together, god forbid, the policies pay out twice, rather than once like a joint, for the guardians/kids (so worth doing and it's such a minimal cost to do this).

We are both independent good earners so not too worried about things outside of mortgage and kids. Also have critical illness and income protection. We set up our policies whilst quite young due to being young parents so this has helped keep costs down!

We went through a broker who went through it all with fine tooth comb.

Our life insurance less than the value of our mortgage because DH and I both have significant death in service benefits through our jobs. Life insurance isn’t a requirement at all.

Never had Life or CI cover as employer Death In Service cover was more than sufficient.
Not saying it is not a good idea for you to have it but it wasn't necessary for me.

The problem with relying on death in service benefits is if you were to leave that job you lose them, you might struggle to match them elsewhere or you may become ill and unable to work, it is then more expensive to try and get it when you're older and potentially with pre existing conditions.

(I don't sell insurance, honestly...)

Thanks for all comments, we have both death in service that would cover tbe mortgage but obviously not if illness , could change jobs etc so don’t want to reply on that. The advisor is not independent so that’s a good recommendation. Meeting them on Monday so will assess between now and then.
the quotes were for separate policies but no different in cost from a joint so obviously picking separate so if split etc.

You can take out a mortgage protection policy to cover the last 5 years.

No qualified advisor would ever recommend taking out insurance for less than mortgage term. It completely defies the purpose.

Wrong - advisors (including independent, which only means they advise on “whole of the market”) receive commission but they must oblige to MCOB and ICOB which prescribe to act in the best interest of the customer. Mis-selling of insurance and mortgage products is prohibited.

The thing is you are going to statistically be much more likely to need the insurance in 25 years than 20 which is probably why the premiums are higher. You may have every intention of overpaying but you don’t know you’ll be able to or interest rate rises mean you struggle. I can see why the savings now appeal but also why an advisor might not want to recommend a shorter term for insurance.

In hindsight we probably went too heavy on life insurance and didn’t need a flat policy. If I’d do it again I’d do what another poster did and have a decreasing term policy for the mortgage and a separate policy to cover income loss of a death. We did a flat policy that covered childcare, private school, entirety of mortgage until we’re 70. That level of cover was sensible 5 years ago and would obviously still come in handy but now both children are about to be in school and mortgage much lower we probably don’t need the same level of cover. I have looked at quotes but as we’re older plus inflation we’re not going to save that much unless we drop cover down significantly.

The one thing I think I’m nervous of is we don’t have any critical illness cover. We’re sorted if one of us dies and we’re fine from age but our 50s are going to be our risk point statistically (still high mortgage, possibly private school fees and higher chance of illness).

@Bunnycat101 have you spoken with a broker? As I'm sure you're aware you're statistically more likely to need critical illness than life, so it seems a bit unbalanced to have such high cover all the way to 70, vs something more tailored to what you need in the short term? Might just be worth the conversation.

@jfshu i was playing around with some calculators just now as I do think you’re right and a chat with a broker might be sensible. We were really young when we took out the high levels of life cover and we’d never get anything near it now for the price. Same premium looks like it would give half the cover if I took out a new policy.

Just slightly kicking myself we didn’t do critical illness at the time as it is much more expensive now.

@Bunnycat101 it's tricky because when you're younger and setting out it's when you have less financial flexibility. I really recommend talking to a broker, we had a some specific circumstances that made some companies no go for us so was so helpful to be walked through the process. Plus I am so terrified of getting it wrong and signing up for bad terms and conditions etc! The broker didn't cost us anything, they get paid via the insurance companies.

Any cover linked to your mortgage has to be for the same term as the cover reduces according to your repayments. If you were to die 5 years in on a 20 year cover your payout would not cover the remaining balance as you are paying it off more slowly over 25 years.

However, you don’t need to opt for decreasing cover, you can opt for a level cover. I don’t understand why Criticial illness would be arranged on a decreasing level. Obviously if paying off your mortgage is all that matters, then fine, but if you find yourself unable to work and potentially needing to convert your home, you will want a certain amount of money and not just pay off a bit off mortgage left after 29 years or so.

Is it a life insurance where the amount your covered for reduces each year in line with your mortgage? Also critical illness is not compulsory but it's a good idea to to have in case you get one where you can't work but still need an income - do your employer offer any of these benefits at a reduced cost? My previous jobs policy was much cheaper than individual ones

Never get things like insurance from someone recommended by your mortgage broker, they're creaming off a commission. just tell them you'll sort it yourself and send them proof of cover.

@mycoffeecup I disagree with doing it yourself, critical illness etc is a minefield and found a broker invaluable, although agree not going through your mortgage broker, in my experience they are less specialist and are just flogging it with the mortgage as it makes them a lot more money than the mortgage (although know I can't speak for them all). There are a lot of good independent brokers though.

Yes they get a commission, that's in exchange for their knowledge of the protection insurance market and what providers would be best placed to help people. Not all providers cover all health issues and if, like OP, you have no idea on protection insurance then a broker is definitely very beneficial.

OP decreasing term life insurance is an ideal but not an essential. Personally for me Critical Illness cover is the cover I'd insist on having. This isn't tied to your mortgage but more income related, what you'd need to cover your outgoings for a couple of years in the event you couldn't work.

Your adviser will be obliged to recommend a suitable policy. Suitable means covering the full amount and term as there is no guarantee you will reduce term (from a regulatory perspective)

Just see which provider the adviser recommends and go direct, without advice. L&G are excellent for life and CIC.

yes a broker, just not the same one who is doing your mortagage

@mycoffeecup why? They're trained in the area and likely have years of knowledge behind them.