First time mortgage, what should we save/ have insurance for?

[Irecan]

Hello,

My DH and I just had our mortgage application approved and we are wondering what we should have insurance for and also what types of savings pots we should have?

Our broker (who has been amazing) has referred us to a financial protection consultant who recommends we have the following:

1.income protection which would be paid until retirement age
2.critical illness cover (of 30k each), thrown in to this would be complimentary private gp and physio appointments online.
3.mortgage life cover

This would cost £140 pm total, seems expensive especially since we also pay insurance for both of our dogs and it’s gone up quite high this year. I just don’t know if it’s normal to have this much insurance just for ‘what if’ scenarios. Also, I don’t really know if it’s worth having both critical illness and income protection cover, they seem similar.

Assuming we’d also need buildings insurance as well, we are buying a leasehold so not sure if that’s necessary, does the freeholder take responsibility for fires etc? If that’s not the case then we’d probably need to save for such emergencies as where would we live if that happened?

We also wanted to save for other little emergencies such as plumbing issues etc.

I don’t know many people who own their own home and those that do don’t have much savings or insurance so I’m completely clueless with this and would like some advice as I don’t want to spend tonnes of money on insurance if it’s better to have savings.

As not to drip feed, we come from quite poor backgrounds where both our parents never saved and wouldn’t be able to help us out in an emergency. It’s made us quite careful with money but we have just recently started on decent salaries now and also want to finally enjoy our money. On one hand, if we overspend on insurance/ savings then we won’t be able to enjoy our money but on the other hand I am slightly anxious about money and it gives me comfort to know we have several buffers.

Are there other important things we should be saving/ insuring for? I just don’t know what’s normal. We don’t have kids yet but starting ivf next year.

We have just paid off our mortgage after 23 years.

We had critical illness insurance and life insurance cover to start with; I'm sure at least one of those was required by the lender. We also got income protection when DH's industry was going through a very rough period. This has been very useful since - well almost dh was made redundant, but found a new job just before the end of the qualifying period for the income protection. Life insurance paid of my friend's mortgage when she died young, which was helpful for her widower, as he couldn't have continued to pay it himself. My dad had no insurance whatsoever, so when he had to stop work through ill health when I was 12, DM had to get an evening job, as well as her 9-5, and we had to move to a cheaper area to generate some capital.

We also had - and still have - buildings and contents insurance.

Insurance is all about the "what ifs". If we knew what was going to happen, then the insurance industry would not exist.

Leasehold properties usually have buildings insurance included in the service charge or ground rent you pay.

Whether life insurance/income protection and critical illness cover are really necessary depends on your specific circumstances but I would not trust a broker to judge what is appropriate for you.

Look at your and your DHs job situation. If either of you works in the public sector or an ex-public-sector organisation, or in a major industry full of large scale employers who are in competition for a limited pool of qualified professionals, you may have death-in-service benefit as part of your standard Ts&Cs so may not need life insurance.

Also look at your wider family. If one of you was killed in a traffic incident before 40, or was struck down with cancer, do you have people around you who can help/subsidise your mortgage payments/let you move in because they have a massive house.

Lots of critical-illness and income-protection products have so many conditions and exclusions that they virtually never pay out. You could be better off saving the same amount as these suggested monthly premiums into a "never touch this" savings pot which you only crack into if something awful happens.

Tragedy does strike sometimes, but rarely. If 100 couples in identical circumstances to you all decide to pay these premiums then after 10 years each couple will have paid out over £20k so the insurace companies will have accumulated £2,000,000 in premiums. One of those 100 couples will get struck with some dreadful tragedy in that time and may recieve a £1,000,000 payout and the insurance company keeps the rest. Alternatively with no insurance, every couple is £20,000 better off but one unfortunate couple ends up facing some kind of tragedy/bereavement with no payout to cushion the blow, and end up having to sell theut home at a time when they are struggling with the very worst life can throw at them.

I certainly wouldn't pay all those all the way to retirement age. I might pay some of them up just from when ttc until my youngest child was e.g 8 so that if one of us died in those early years the survivor would need a lot of help, but not for the whole term.

Mortgage life insurance is a strange kind of product. The premiums are constant throughout the term but the payout in the event of a death gets gradually smaller and smaller (theoretically this makes sense as the chances of you having dropped dead by that point get steadily larger) but this means that you are paying the same monthly amount in year 1 for a potential payout of £200,000 if you get hit by a bus, as thr amount you pay in year 23 when the payout would be less than £10,000 - I would definitely cancel that one before the end of the term.

We have recently bought our first house and were also recommended all of these things by our insurance broker. However, they are of course earning a commission from the insurance company they recommend. We have since got much cheaper quotes for all of this by using a comparison site and finding the quotes ourselves. I would recommend having a look as our quote from broker was about £170 pm but we have managed to get separate quotes ourselves for about £80pm.

We took out a policy to cover our mortgage and then an additional policy when our first child was born The mortgage ones ends when we pay off the mortgage and the other when our younger son is 18.

Because our mortgage was small and I was a SAHM at the time we didn't take out income protection.

I have just been diagnosed with stage 4 cancer and I am unlikely to survive beyond the terms of the insurance so DH will be able to use the money to make up for the income he will lose from me not being here and to help our kids who are currently 14 and 18, but had one of us died when the kids were younger it would been even more important to either replace DHs income or pay for a nanny to cover me.

If you're public sector then I'd probably not bother with income protection - we didn't as DH is public sector and pre-existing conditions made it astronomical for me.

We're currently waiting to hear if our critical illness claim has been accepted by the insurers: DH was diagnosed 18 months after we took the policy out. If we can pay off the mortgage then it's just one less thing to worry about.

If you have a work pension, check if that includes any of the ill health or life insurance.

You absolutely need contents insurance. Check if buildings insurance is included in the management fee. If not it's absolutely essential.

Then, the rest is down to your risk preferences. We have never stretched ourselves so that we couldn't survive on one salary, but we live in a cheap area, so this is possible. We have life insurance through work, but none of the others. Overall, insurance companies make money. Most people will pay more than they take out. A small number of people will take out massively more than they paid.

Firstly do not rely on death in service from work. If you change jobs you'll lose it. If you become too ill to work and get medically retired you'll lose it.

As a minimum I'd get life to repay the full mortgage and if you don't have enough in savings to cover the average claim period on income protection (83 months) then make sure you get some because it is the HIGHEST claimed on policy. Critical illness is a nice to have, but most people can't cover their bills if unable to work due to accident or illness which is where income protection comes in because its a monthly payment to you if you can't work due to accident or illness. Whereas critical illness is a lump sum payment of a pre-defined illness (written in the policy documents).

If full term income protection is too expensive maybe look at a plan that only pays for a certain period of time per illness or injury because it'll buy you time to make plans but will be cheaper. Obviously negative is it'll stop paying after a certain period of time even if you're ill longer.

Thanks for your replies and very sorry to hear of the diagnoses some of you have unfortunately received.

I am starting a 3 year contract with the NHS soon and I will likely work for them throughout my career, I need to check their benefits but I hear they are quite generous?

Bear in mind they're making a tidy commission from flogging you those insurances. If you have a pension with your employer you probably both have no need for life cover. Check!

If you don't want to trawl through all the free advice on sites like MoneySavingExpert get yourself an independent insurance broker, not the one recommended by your mortgage advisor.
They'll walk you through the best options for YOUR budget. not the other way around as seems to be happening

Nhs death in service will be generous so you should look at your cover before you pay out. Also be aware that it is much cheaper while you’re young. We didn’t get our cover quite right but did it in our 20s and now the cost to change it would be much higher for poorer coverage. We took our large life cover until we were 70 but no critical illness or income protection. If I did it again I’d still take the large life cover but only until 55/60. I’d have then thought more about critical illness as that is our biggest financial risk going forwards.

So much misinformation about financial advisers, and I feel you've clearly seen the wrong ones because although my job has always been commission based I've never recommended anything not needed.

Re: pension linked DIS as previously stated if you are medically discharged before death your family will not receive it. So don't rely on that.

@Irecan NHS sick pay starts low and after 5 years of NHS service you will have 6 months full, 6 months half.

Personally I'd speak to a different adviser in a different firm if you're not sure of the recommendation. A good adviser will tailor your cover to meet your budget.

While the cost of life, critical illness and income protection seems high now bear in mind if you decided that you wanted these policies in a few years time you will be older and it is likely these cost more. Also if you have had any medical issues in the meantime this could also increase the cost. Taking the cover out while you are young and healthy with guaranteed premiums is a sensible thing to do especially with a big debt like a mortgage. No one knows what the future holds.

Thanks I’m veering more towards taking them out, I’m quite risk averse anyway and we really don’t have anyone to help us if something were to happen. Since we are planning to start a family I think it’s wise to do this. Our broker and insurance advisor seem
great, very transparent and not pushy so I’m trusting them but also airing with a little caution as I know they will be making commission.

Seems a bit much! I'm sure I had a similar cover for £18 - there was income protection but I can't remember the specifics. May have been death only but still a huge difference.

Get quotes.

Life insurance at a minimum because it's costs a few quid. Your extra covers are a nice to have.