Critical illness/life insurance cover for mortgage advise

[Evo8]

Applied for my mortgage today

First time buyer
No dependants

I get 6 months full pay sick pay then 6 months half pay through my job

Almost carbon copy.

I went with the deal that if I can't do my job it pays out my living costs until I'm 67.

Never took the critical illness, death cover thing cos if I die it'll be left to my next of kin and they can sell it and keep the equity. Obviously be different if I had children or a partner.

 

[Jimbo Mahoney]

Our mortgage adviser tried to flog us this today.

I was already prepared with life & buildings & contents quotes that totalled £25 pm.

The mortgage adviser tried to sell us £67 pm of critical illness and £30 of buildings & contents.

I looked into the numbers, and the best I can come up with is the following:

• 6% of adults have critical illness cover (UK)
• There are 52 million adults in the UK.
• There are ~16,000 critical illness claims in a year.

Therefore chances of needing to claim (per year) are ~0.5% (slightly higher because they don't pay out 100% - more like 92 - 95 %).

Over a 25 year period, there's a ~12% chance of needing to claim, so the typical "value" of a claim (for us, on a decreasing policy) works out at £7k (the average value of the payout over 25 years times the chance of making a claim).

If we invested the difference (£57pm extra for critical illness vs. life), we would have saved £28.5k over 25 years instead of paying out £17k in premiums. (Assuming annual return of 4%).

The insurer therefore typically profits £10k and the mortgage adviser small print shows they get £3k.

Summary = 88% chance of having £28.5k vs. 12% chance of having £59k (minus any premiums paid).

Seems like a bad deal to me.

 

[Destination]

They want £60 a month for just £57K of critical illness cover?

-edit
The policies I have
The monthlies, roughly what the cover is for, and the payouts
All my policies are own occupation, so if I can't do my own work, doesn't matter if I can do something else, they pay out

£78.8 Critical Illness with Life Cover £197638.22
£31.04 Life Protection and Income Protection 1182.31 pcm £167156.45 Life cover
£36.48 Self Assurance SMC £26848 Annual £132235 Payout
£16.54 Income Protection £934.65 pcm
£37.49 Income Protection £15990 per annum
£41.48 Critical Illness, Total Perm Disability, Terminal Illness £163,432

some are a much better deal than others, all related to the age i was when I first took out the policy

 

[The_One]

Our mortgage adviser tried to flog us this today.

I was already prepared with life & buildings & contents quotes that totalled £25 pm.

The mortgage adviser tried to sell us £67 pm of critical illness and £30 of buildings & contents.

I looked into the numbers, and the best I can come up with is the following:

• 6% of adults have critical illness cover (UK)
• There are 52 million adults in the UK.
• There are ~16,000 critical illness claims in a year.

Therefore chances of needing to claim (per year) are ~0.5% (slightly higher because they don't pay out 100% - more like 92 - 95 %).

Over a 25 year period, there's a ~12% chance of needing to claim, so the typical "value" of a claim (for us, on a decreasing policy) works out at £7k (the average value of the payout over 25 years times the chance of making a claim).

If we invested the difference (£57pm extra for critical illness vs. life), we would have saved £28.5k over 25 years instead of paying out £17k in premiums. (Assuming annual return of 4%).

The insurer therefore typically profits £10k and the mortgage adviser small print shows they get £3k.

Summary = 88% chance of having £28.5k vs. 12% chance of having £59k (minus any premiums paid).

Seems like a bad deal to me.

you wont invest the difference though

if you don't take out the cover you will just spend that money instead I guarentee

 

[SuperOwl86]

I am in the same boat at the moment.

Been offered Critical illness cover with Scottish widows at £17pm for a 84k Mortgage but they will not pay out if I was to be blind due to my visual impairment which is not good from my point of view. So not sure what to do.

 

[Jimbo Mahoney]

They want £60 a month for just £57K of critical illness cover?

No, 118k of decreasing, so I'm working on the basis of the average payment over the period of the policy. It's an extra £57 on top of a basic life-only policy (for extended critical illness). The basic critical illness is an extra £47.

you wont invest the difference though

if you don't take out the cover you will just spend that money instead I guarentee

In most people's cases, yes, but I'm financially savvy and save a significant portion of my net income into appreciating assets. The higher my take-home becomes, the more I invest.


I think we're going to go halfway:

£118k of life cover.
£30k of critical illness.

Brings it to a more reasonable ~£25 pm.

 

[Psycho Sonny]

Our mortgage adviser tried to flog us this today.

I was already prepared with life & buildings & contents quotes that totalled £25 pm.

The mortgage adviser tried to sell us £67 pm of critical illness and £30 of buildings & contents.

I looked into the numbers, and the best I can come up with is the following:

• 6% of adults have critical illness cover (UK)
• There are 52 million adults in the UK.
• There are ~16,000 critical illness claims in a year.

Therefore chances of needing to claim (per year) are ~0.5% (slightly higher because they don't pay out 100% - more like 92 - 95 %).

Over a 25 year period, there's a ~12% chance of needing to claim, so the typical "value" of a claim (for us, on a decreasing policy) works out at £7k (the average value of the payout over 25 years times the chance of making a claim).

If we invested the difference (£57pm extra for critical illness vs. life), we would have saved £28.5k over 25 years instead of paying out £17k in premiums. (Assuming annual return of 4%).

The insurer therefore typically profits £10k and the mortgage adviser small print shows they get £3k.

Summary = 88% chance of having £28.5k vs. 12% chance of having £59k (minus any premiums paid).

Seems like a bad deal to me.

insurance always is a bad deal. that's how they make money.

if it was a good deal all insurance companies wouldn't be valued in the billions or trillions

 

[Jimbo Mahoney]

insurance always is a bad deal. that's how they make money.

if it was a good deal all insurance companies wouldn't be valued in the billions or trillions

Aye.

Tempted to buy shares in the company we go with! (L&G probably).

I did quite well from some Aviva shares a while back.

 

[LeeUK]

Surely if you are so critically ill that you won't be working for a long time you will be able to claim benefits that will cover your mortgage payments from. Or is having the insurance to maintain a high flying lifestyle after you become long term critically ill?

I know when my mother was critically ill she was getting nearly £1K in benefits a month which more than covered the mortage, well it was less than £100 a month repayment.

 

[The_One]

lol good luck if your gonna rely on benefits to pay your mortgage AND allow you to still live al ife

 

[Semple]

As above, SSP is £370 a month. That wouldn't cover the majority of people's mortgages, let alone bills and food on top.