New mortgage - what life insurance did you get when you have pretty good employer benefits?

[Sandrine1982]

Hi,

We're thinking of getting a life insurance cover as we've just got a new mortgage but both DP and I have quite qood employer benefits, as follows:

Pension – Salary sacrifice, approx. 9% employee and 20% employer
Death in service – Lump sum 3 times annual salary
Sick pay - Full Pay for 12 months, Half Pay for 6 months

The mortgage is around 500K, term 20 years. We have one dependant, currently 2 years old.

I'm just not sure what cover we should get as I don't want to pay a lot of money for something we already have (e.g. death in service lump sum). However I'm worried about things like critical illness that would prevent us from working for the rest of our lives.

What sort of cover would you get in our situation?
I don't know much about insurance and it seems to be a minefield :p

Any advice much appreciated!
x

I have similar benefits to you - my mortgage is not so big, but I probably earn less! I have never had life insurance.

I am definitely not an expert but we recently got ours and in the end it was looking like critical illness was out of reach for us. Instead we decided to get two individual policies that are level cover to cover our mortgage if one dies now, but in 10 years the payout will still be the same amount (so pay off mortgage plus extra money). Two policies were basically the same price as one joint policy so we went with that because if one of us dies the other has the house paid off plus maybe a bit of money (depending on when it is) and then if both of us were to die then our children would get the house paid off plus another very significant sum of money. Critical illness would be really good if one of us couldn't work anymore for whatever reason but we figured we would have to just deal with that when it happened as the quotes were too much for us.

Of course hopefully we will never need it as it is only for 24 years by which time I will be 57 so hopefully will still keep going for longer than that!

Income protection replaces your salary if you are alive but can't work. also think about other expenses e.g. if your kids are in private school you might want a lump sum to cover a couple of years so that if they have to leave they can e.g. finish GCSEs rather than leave in the middle of them.

What would you do if you lost the job or could no longer do it for medical reasons? What if for whatever reason (by choice or not) you have to change jobs and the new job does not have as good benefits and you need to get insurance? By that point you'll be older, you could have developed new conditions making insurance expensive.

Whilst we considered our employee benefits to a degree, we made sure the insurance we took out was the base line (and more), the employee stuff is an added benefit, not what we rely on.

Sorry to answer your actual question, we have life insurance x 2 (each, separate policies as they pay out twice if you die together) one to cover the mortgage, one to cover the other if we were to die to replace our salary for the other parent. I have critical illness and income protection, DH has just CIC (he can't get IP because of his job).

We both have death in service benefits and chose not to get any insurance with our mortgage. However, each of us could afford the mortgage on our own if the other was ill, so that made a big difference.

I think you need separate life insurance to cover the mortgage.

The death in service benefit is to replace the as yet unearned salary (imo).

The life insurance lump sum gives you an opportunity to pay off the outstanding mortgage debt/other debts eg credit card/car loan etc.

Naturally you could view this vice versa. So either way, something for the current debts and something to live on going forward.

This takes away the financial headaches that might ensue from an unexpected bereavement.

Cover ALL the bases! You can buy peace of mind.

And WRITE YOUR WILLS.

Agree with pp that life insurance should be separate to employee benefits. What happens if you lose your job / decide to move?

Also, you cover is not actually that much. Unless you're earning about £160/170k per year, 3 x your salary isn't going to pay the mortgage off.

I also think you need to genuinely think about what would happen if one of you died, awful as that is. If your H died next week for instance, and you have a 2 year old, would you genuinely be able to carry on (after a few weeks of compassionate leave) with your current job earning the salary you do (or would you need to go part time etc?).

Are you planning any more children (bigger expenses / maternity leave etc)?

I also think (personally) that a joint policy isn't great as it only pays out once. Once its paid out, the survivor has no cover.

I'd want 2 separate policies, decreasing cover, for at least £500k to pay the mortgage off and then maybe £100k worth of critical illness cover each.

This sounds great, thank you so much.

Oh, just a couple of questions if I may.

• say I take out £50,000 in additional critical illness and I'm diagnosed with cancer and then die 2 years later. Do I understand correctly that the insurance company will pay 50K at diagnosis, and another 50K at death? So £100K in total?

• I assume the company has access to your GP records and medical history when you make a claim due to illness. What level of detail do they dig out? Can they use it against you? For example, I used to smoke very occasionally between the ages of 20 and 30. I don't smoke now and I've never considered myself a smoker, however I may have completed a GP questionnaire years ago where I put, say, 2-3 cigarettes at the weekend. Would they use it against me if they find something like this?

OP I'd recommend going through a broker, there are so many loop holes with insurance you want to be sure you're getting a valid policy suitable for your circumstances. They don't access your medical records (in my experience at least, not on taking out the policy), you have a medical questionnaire but if you answer inaccurately it would invalidate your policy.

I've tried to answer the medical questions on mineysupermarket but none of the questions about smoking applied to me :-p

Anyway thanks - I'll call my broker and ask

I'm not sure if they access them if the policy is needed to pay out, I would assume so but never thought to ask!

say I take out £50,000 in additional critical illness and I'm diagnosed with cancer and then die 2 years later. Do I understand correctly that the insurance company will pay 50K at diagnosis, and another 50K at death? So £100K in total?

It really depends on the policy you take. If you have just a critical illness policy for £50k, they will (subject to you meeting the criteria) pay out £50k upon diagnosis of a critical illness. Thats the end of the policy. You don't get anything upon death. We have life insurance with critical illness combined (that we took out when we were young so its relatively cheap) - so we'd get all of the money upon diagnosis of a critical illness, and then we have separate policies for life insurance which would obviously pay out when we die.

If you wanted £50k upon diagnosis and then £50k when you die in one policy, you're better speaking to a broker to see if this is possible - it might be that you have a £50/100k life insurance policy combined with £50k of critical illness cover.

Thanks all. I've just been using the online calculator and trying to understand the difference between "combined" and "additional" critical illness cover, and the additional seems to pay out both upon diagnosis and death. Or is it the other way round?

Am so glad I've seen this, I was going to ask the same question.

I know back in the day the critical illness policies had a bad reputation for taking your premiums but then only actually covering a limited number of conditions - so if you are diagnosed with cancer they pay out, but MND they don't and so forth. Has that improved now or still something to be wary of?

Also, what about accident / trauma - do they cover you for that?

Obviously young people are stretching themselves so much to get their first mortgages, it doesn't leave much wiggle room for too many insurances, but of course, should the worst ever happen, you would wish you had taken everything out

I'll assume you're 39 from your username (age is relevant for life insurance).

When I was with my EXDP, we both had similar work policies to yours (although life cover was x 4), and both took out separate level term policies for life and critical illness, even though the work benefit would actually have covered mortgage in full.

This is because:

• if you leave your job for whatever reason, the work policy stops instantly
• think about how will the other person pay bills after 12 months/18 months when sick pay stops
• you can't foresee what would have happened to cause the situation; your partner may also have had to stop work to care for you

At the time we took out the 30 year policies, we were 36 and 38. My policy was £31.50 per month as I have absolutely no health issues, and EXDP's was £48.70 as he had a disclosable health condition. Unless you're currently at deaths door with ill health, if you're a similar age you'll probably find policies similarly priced, perhaps up to £50.

I suggest you go to a specialist advisor, who will be able to help you. From memory we didn't pay them, as they got commission from the insurance company that we took policies out with.

We took out insurance on DP to cover the entire mortgage in the event of his death. He is a very high earner, and I couldn’t afford the mortgage on my salary, but I could afford everything else. DC is 1. We both have policies that cover us if we become unwell through work.

We took out insurance on DP to cover the entire mortgage in the event of his death. He is a very high earner, and I couldn’t afford the mortgage on my salary, but I could afford everything else. DC is 1. We both have policies that cover us if we become unwell through work.

Will your DP be able to take on all the duties you do if you were to die or easily have the funds to outsource it? I know you're not a SAHP but just raising the point lots of people view insurance only from the higher earner's loss but forget the "non financial" contributions of the other.

We have better death in service policies than you but still took out life insurance & critical illness to cover the mortgage.

We have young dc and our reasoning is we want them & their lifestyle as protected as possible. So it’s not just about paying off the mortgage but also maybe the surviving parent being able to not work for quite some time or cut down hours significantly etc, buy in whatever help they need & so on.

Having seen a couple of friends go through losing a partner, the one who had brilliant life insurance policies had a much much easier time than the one who had ‘just enough’.

So I have had the worse case scenario here. I gave up work after second child and my husband was a high earner and we had a big mortgage (over £1m). He had life insurance through his work but it wouldn't have covered the mortgage, and to this day (he died 12 years ago) I do not understand, for a financially cautious and meticulous planner, why he never took additional life insurance to cover the mortgage. He died suddenly at 51, he had an ex wife and older kids and ours were just 4 and 6 years old. I received 75% of his work policy (the rest went to ex wife and grown up kids) and had to sell the house immediately to pay off the mortgage and downsize to one half the size in a cheaper area. Having substantial equity meant I could buy our next house outright which is his we've managed since then.
Get the insurance. You never know what will happen.

@userchange987 To be honest he doesn’t do an enormous amount because his work is all consuming, but I’d be able to afford the cleaner, and I also have another property I could sell to fund childcare/ independent school fees, etc. Everyone’s individual circumstances are of course different though.

@mobear I mean if you were to die (sorry to be morbid!) it's often the case someone has been enabling the higher earner, would the higher earner be able to emotionally and physically support the family alone alongside the high paying job if the SAHP/lower wage parent died. They will likely need to insure the lower earner still to either reduce hours or outsource the house work required and maintain the same standard of living.

On mine or my DH's death I don't want either of us to have to sacrifice the lifestyle we envisaged for our children so ensure we are both very well insured to make life as easy as is possible (with money at least, obviously money will only take you so far).

@userchange987 Oh I understand! Yes, DP thankfully earns enough that he could afford childcare/ a housekeeper and also to take a long break from work. There are also very involved grandparents on both sides, although I wouldn’t want to rely on them!

@mobear that's great, but here's to hoping it never comes to that of course lol!!