Insurance Policies - 'Advised'

[RastaManBob]

Hello!

I've put this question in the 'Home and Garden' section as the question relates to some of the decisions required when purchasing a home and so I'm sure I'll get the most relevant answers here.

I used a mortgage broker to arrange my mortgage application. Since, the broker has advised on other insurance policies (including, but not limited to, life insurance). As an end-user can somebody tell me what advantage an 'advised' policy brings, particularly if I know exactly what sort of cover I want?

I'm happy to purchase directly, or through a discount broker, in order to get slightly better premiums however I'm aware these will no longer be advised - It's clear an advised policy comes at a cost and I'd like to understand what you receive for that cost. Is, for example, a policy any more likely to pay out because it is advised? If the policy does not pay out would you have recourse through an advised policy?

Thank you.

 

[doggles]

Normally taking advice provides a higher degree of consumer protection. I.e if the policy doesn’t do what you’re told it’ll do you have grounds for complaint.

However if it’s life cover for a mortgage normally it’s relatively simple.

Interest only mortgage. Normally a level term assurance with sum assured matching the debt and a term with matches the mortgage term.

Repayment mortgage would need a decreasing term assurance with an initial sum assured matching the debt over the number of years the mortgage has to run.

Standard interest decrease rate would be 8-10% for a dta.

You can then build in options like critical illness which pays out on diagnosis of a particular critical illness. Waiver of premium which means if you’re ill (not critical) the premiums are paid for you, normally after an initial period of 6 months

Also you can get reviewable or guaranteed premiums. Reviewable normally start cheaper then get more expensive after 5 years.

Advised will possibly advise on the use of discretionary trusts as well. Placing the policy into this would allow payment of proceeds to fall outside of your estate and potentially quicker payment of proceeds .

Also advised, if you have any particular medical history could do some pre-application underwriting, as although company a may seem cheaper initially. Since you had x wrong with you company B may end up being cheaper. Also advised may have access to better rates

 

[RastaManBob]

Thank you for your reply - It's been really helpful! I think I'm happy with what product to buy and the numerous options. The only decision I need to make is regarding trusts but as I understand it I can put the policy into trust at any time in the future and so I may delay considering that until there is a little less going on. Thank you!

 

[doggles]

Yea that’s true but you may as well
Do it at the outset. You’d need a couple of trustees too. In my experience it’ll never get done otherwise

Absolute or discretionary trust would be the options. Normally you’d do a discretionary

 

[RastaManBob]

I don't think we would want absolute/bare given that we might have more children in the future. As a result, it would mean using a discretionary trust but the idea of it being 'outside of my control' worries me a little. The insurer does have a stock form to fill in on their website but I think I'd want further advise which I imagine would be costly. In theory if I passed away I would want my wife to receive the payout, and vice versa. If both of us pass away I'd want the money to be for children but it's not clear how to ensure this happens. Additionally, if the worst were to happen and both my wife and I passed away with young children I suppose we might choose for a future carer to have access to the payout in order to support his/her upbringing. I'm just concerned about putting something into trust without knowing how to take care of the above and in the process lose control over the policy. Still, I'm sure the above is pretty standard stuff for most parents life insurance...

 

[doggles]

Also its always worth writing a will as you can cover these within it.

The companies standard discretionary trust document would be sufficient normally it also keeps it all in house with them

With regards to the part about having the money for the benefit of the kids on both death.

The policy would pay to the trust, the trustees would then make use of this I guess in this instance depending on who you would have as their guardians may be used to pay the mortgage off so the kids can remain in the family home with the guardian moving into live with them
Perhaps. Although I appreciate this would depend on who that person was. It would then mean the children have an asset when they grow up.

If you’re thinking of alternative options where you can provide something specifically for the care of the kids, you get policies called family income benefit which pays £x each month / year until the kids aren’t dependant with the funds used to meet any living expenses etc.... with things like this though you’re getting in to the realms of needing proper financial advice

In most cases these days companies will not charge for advice which relates to providing protection policies instead they receive commission from the provider in lieu of you being charged an advice fee