Mortgage for my new house: do you have critical illness/life cover

[Bouledeneige]

I am in the process of buying a new house. I am divorced and I'm 56, the mortgage will be in my sole name. I am having to increase my borrowing a bit with the aim of it being paid off in 9.5 years. I have got a quote for critical illness cover and life cover which comes to £170 per month - this is mainly in case I get ill and cannot complete my payments. I don't want to have to sell the house. But without being indelicate or presumptive my father is 91 and when he dies I am likely to inherit a reasonable amount of money - I could even pay off my mortgage entirely. But that will depend on what care costs he might have in the coming years. I have not made any assumptions about this re my borrowing or future prosperity.

I'm a little worried about my job security and if I have to get a new job whether I will be able to match my salary. It seems that in my sector salaries are going down at the moment so I am anxious about having a larger mortgage. So I've been wondering whether I need to pay the critical illness cover. On the other hand its only £170 a month for peace of mind.

Can I ask - do you have this cover?

I’ll add - the feeling you have now is what motivated me to sacrifice and save to get the additional 12 months worth of payments into the mortgage within 2 years!

A second bonus is that it obviously reduces the amount of time I will have the mortgage, both because of the extra payments and also the lower interest I now pay.

We looked into this nearly 9 years ago when we were in our 30s and got quoted similar, probably slightly lower but still over £120. We decided it's too much. We have quite a lot of savings and always make sure they cover about 12 months of mortgage payments. We pay £35 into life insurance, which decreases over the term like a mortgage and would pay our mortgage in full plus a little bit extra.

I had this cover from my late twenties. When I was 48 I was diagnosed with breast cancer. The policy paid out and it was such a help at a difficult time. It was a lot to pay out every month and at times we thought about cancelling it but so glad we didn't. There was no way we could have saved the amount it paid out.

On the other hand its only £170 a month for peace of mind.

How much cover are you buying? I had it but it was £20 a month.

Definitely get more quotes.

It was another poster but I think it’s Private Health Insurance.

Don’t forget your DDs will pay inheritance tax on the £800,000 equity. Another topic I appreciate.

Given you have this equity, I would spend £170 a month on something else. You have money behind you. I assume you have a decent pension for example. My DD was self employed and we decided pensions were far more important. With £800,000 equity in London you wouldn’t be homeless would you? I have a London flat and DD does too. £800,000 could buy something very nice in a decent enough area - not Chelsea!!! But in other areas that’s a decent enough budget.

DH was self employed that should read.

I have critical illness/live cover and income protection. Its £33 a month, although I am 32 and only have asthma. £170 a month is extortionate.

I took out critical illness insurance at your age when a friend had to stop work for cancer treatment and his policy saved the family finances. Cancer, strokes and other illnesses that would stop you working are a real risk between now and retirement. As others say shop around but also look at what you need. How much monthly income could you survive on ? what gap would your company sick pay and savings cover ? These will help reduce the cost. Its not just about the mortgage - its about staying solvent with no salary. Redundancy cover is almost impossible to buy cost effectively these days - but at least in that case you can find another job.

@FollowYourOwnNorthStar

Hi OP, I’m a bit younger than you, but when I got a mortgage (just me, no partner), I looked at this closely, as I was very conscious that if anything happened to my income-earning abilities (job loss, injury, illness etc), there was no one to cover mortgage payments.

After weighing the pros and cons, I decided against it, but to ease my mind abit, I would:

• put the payment amount into my mortgage
• save and build a buffer of 12 months payments in my mortgage (these are paid ahead on the mortgage but can be redrawn if I need cash. Now they sit there reducing my interest)
• look after my health more (it was pre-Covid, but until I got the mortgage I didn’t think about the possibility of getting sick).

2 years on I am happy with my choice. My money is working for me, not an insurance company that may or may not pay out. However I accept it could have been different had something happened before I built the one year buffer of payments in place.

Kinda misses the point. Just because you were lucky enough not to get sick does not invalidate the need for insurance. Its like saying car insurance is a waste of money because I did not have an accident in the last two years

I took out a critical illness policy when I bought my house on my own. I was 36 at the time. At 42 I was diagnosed with stage 3 breast cancer and the policy paid out. I'd over paid the mortgage and swapped rates so the policy was worth more than the outstanding mortgage. The difference was paid out as a cash lump sum. My cancer has returned so knowing we don't have to worry about the mortgage is a relief.

With 800k equity you could downsize if you had to somewhere a little cheaper so personally I would take the risk.

Do you have any financial dependents? If not, you don't need life cover. I would still check death in service benefit and the nomination for it. Ditto any lump sum payable from your pension in the event of your death.

You are only 56. My mortgage with Nationwide is until I am 70. This was the only way I could Afford to buy a house for my children from the joint family assets. I fully intend to pay it off before then. But I have a 10 year fix at rate so cheap it would be silly not to use. It gives me more disposable income each month.

I don’t have it. But I get death in service which would clear the debt and I also get 6 months full pay and 6 months half pay sickness. If I was terminally ill I would get ill health retirement and would access my pension. Have a look at your pension and your company sickness policy.

Another factor - if you were made redundant your £800k would buy a £500k house where I live in a very nice county in the south east commuting to London. That would give you £300k to live on until your pension kicks in.

I don't have it. I have a pre-existing condition which meant that even when taking my first mortgage at 24, no-one would cover me. I have decent sick pay (CS) and reasonable death in service benefit (although it wouldn't clear whole mortgage).

Also - what's your pension like? If you are in a defined benefit scheme with provisiom for early retirement on grounds of ill health that's very different from being in a DC scheme. As PP said you could pay extta into your pension to self-insure but there are tax implications if you needed to get to that money before you were ready to retire completely.

Self-insurance into an ISA or similar is an option but for £150k - you'd need to be putting it away at much more than £170 per month.

I agree go to a broker and see what they can offer you to cover CI and/or redundancy and/or loss of income.

People aged 32 who are saying it’s expensive are not aged 56. That’s a big difference in insurance terms. You are a much bigger risk at 56. Life insurance means your DCs don’t have to pay the debt if you die. Critical illness cover also should be looked at in terms of your employers early retirement on health grounds policy too.

PHI = permanent health insurance, nowadays known as income protection. Pays out a monthly sum if you're unable to work due to illness /injury. Definitely worth considering rather than critical illness cover.

CI cover pays out if you're diagnosed with one of the critical illnesses covered by the policy. If you have another illness that's not on the list, no claim.

IP pays out if you're unable to work, doesn't matter what the illness is.

My sister died of cancer at age 37 and it is only because she had this cover that they did not lose the house in the middle of her treatment.

I would urge anyone to take out critical illness cover, no one knows what is around the corner. I never dreamt I would need to claim, but sadly I did.

With insurance, obviously those paying and never claiming are far more numerous than those claiming. Obviously some have to but employers can have generous sick pay schemes. It all needs to be considered when evaluating what’s worth paying for. Not all employees get minimum sickness payments.

I will look into PHI - thank you. No I'm not on a DB scheme anymore - they are few and far between these days.

Saying you could downsize is all very well but if you are coping with a serious illness/treatment etc you are not going to feel like moving house and all that that entails.

@MissyB1

We’ve always had it (for 20 years) but the bastards won’t pay out now Dh has been diagnosed with a brain tumour despite the policy clearly stating it covers all cancers. LV are saying without a biopsy it’s nit cancer. But the tumour is in a part of the brain that is not safe to biopsy. The diagnosis has been made by MRI scan and has been agreed on by some of the top experts in the Country. But hey ho a bloody insurance company know better

That's terrible and unfair. It's why I believe that insurance is terrible value. They usually find a way not to pay.