Life insurance
Discussion
I'm completely new to this, but having just taken out a mortgage, I think I should probably be looking at it. What are the main things I should be thinking considering/asking about?
In a slight twist to the norm, I've taken out a mortgage jointly with my sister (although it's just me living in this house, purely an investment for her). If I croak then the house gets sold, mortgage settled, sister gets her equity back, appears to be no issue there. If worst happens to my sister, I presume the mortgage lender is unlikely to let the loan continue? There's no way that my sole loan to income ratio would be viable to them, at least for a few years. So I guess I don't really need life insurance for myself, but more so on my sister's behalf?
My mortgage broker (without asking), sent me some quotes for life insurance, although I'm suspecting they have a moderate chunk of commission built into them. Had some other broker cold call me and has given me some initial quotes for a joint policy, which seem to be about the going rate. Although, most joint policies, as you'd expect, appear to be for couples rather than siblings. Not sure if this is a triviality or makes a big difference in reality? Wouldn't surprise me if the broker's quotes are based on a policy for a couple, even though he's well aware that we're siblings. He said that it wouldn't be any cheaper to have differing levels of cover (requires separate policies), so if I'm going to have any cover it may as well match my sister.
Basic details - I'm 37, non smoker, sister is 33, smoker. Mortgage is 125k, and that's the amount of cover I'd like (for my sister at least).
In a slight twist to the norm, I've taken out a mortgage jointly with my sister (although it's just me living in this house, purely an investment for her). If I croak then the house gets sold, mortgage settled, sister gets her equity back, appears to be no issue there. If worst happens to my sister, I presume the mortgage lender is unlikely to let the loan continue? There's no way that my sole loan to income ratio would be viable to them, at least for a few years. So I guess I don't really need life insurance for myself, but more so on my sister's behalf?
My mortgage broker (without asking), sent me some quotes for life insurance, although I'm suspecting they have a moderate chunk of commission built into them. Had some other broker cold call me and has given me some initial quotes for a joint policy, which seem to be about the going rate. Although, most joint policies, as you'd expect, appear to be for couples rather than siblings. Not sure if this is a triviality or makes a big difference in reality? Wouldn't surprise me if the broker's quotes are based on a policy for a couple, even though he's well aware that we're siblings. He said that it wouldn't be any cheaper to have differing levels of cover (requires separate policies), so if I'm going to have any cover it may as well match my sister.
Basic details - I'm 37, non smoker, sister is 33, smoker. Mortgage is 125k, and that's the amount of cover I'd like (for my sister at least).
mjb1 said:
I'm completely new to this, but having just taken out a mortgage, I think I should probably be looking at it. What are the main things I should be thinking considering/asking about?
In a slight twist to the norm, I've taken out a mortgage jointly with my sister (although it's just me living in this house, purely an investment for her). If I croak then the house gets sold, mortgage settled, sister gets her equity back, appears to be no issue there. If worst happens to my sister, I presume the mortgage lender is unlikely to let the loan continue? There's no way that my sole loan to income ratio would be viable to them, at least for a few years. So I guess I don't really need life insurance for myself, but more so on my sister's behalf?
My mortgage broker (without asking), sent me some quotes for life insurance, although I'm suspecting they have a moderate chunk of commission built into them. Had some other broker cold call me and has given me some initial quotes for a joint policy, which seem to be about the going rate. Although, most joint policies, as you'd expect, appear to be for couples rather than siblings. Not sure if this is a triviality or makes a big difference in reality? Wouldn't surprise me if the broker's quotes are based on a policy for a couple, even though he's well aware that we're siblings. He said that it wouldn't be any cheaper to have differing levels of cover (requires separate policies), so if I'm going to have any cover it may as well match my sister.
Basic details - I'm 37, non smoker, sister is 33, smoker. Mortgage is 125k, and that's the amount of cover I'd like (for my sister at least).
To clarify, the lender wouldn't just stop the mortgage if something happened to your sister.........whats not clear is that you say that the lender would not grant you the mortgage on your own but it's only you living in the property........therfore, it's not the lender that needs cover for your sister, its you that needs cover for your sister.....In a slight twist to the norm, I've taken out a mortgage jointly with my sister (although it's just me living in this house, purely an investment for her). If I croak then the house gets sold, mortgage settled, sister gets her equity back, appears to be no issue there. If worst happens to my sister, I presume the mortgage lender is unlikely to let the loan continue? There's no way that my sole loan to income ratio would be viable to them, at least for a few years. So I guess I don't really need life insurance for myself, but more so on my sister's behalf?
My mortgage broker (without asking), sent me some quotes for life insurance, although I'm suspecting they have a moderate chunk of commission built into them. Had some other broker cold call me and has given me some initial quotes for a joint policy, which seem to be about the going rate. Although, most joint policies, as you'd expect, appear to be for couples rather than siblings. Not sure if this is a triviality or makes a big difference in reality? Wouldn't surprise me if the broker's quotes are based on a policy for a couple, even though he's well aware that we're siblings. He said that it wouldn't be any cheaper to have differing levels of cover (requires separate policies), so if I'm going to have any cover it may as well match my sister.
Basic details - I'm 37, non smoker, sister is 33, smoker. Mortgage is 125k, and that's the amount of cover I'd like (for my sister at least).
Also, a joint policy is just a "first event policy" Eg whoever dies first, the policy pays out.........being siblings rather than a couple has zero bearing on a policy or the implied risk..........
mjb1 said:
Help, please!
Look at protecting your sister's income stream in the event she can't work either. In the event she is ill but doesn't predecease you, she'll still need to feed herself, pay her own council tax etc. If she has to cut back, make sure that the money she normally sets aside for your mortgage is covered. This is relevant to you too, of course. If you have no financial dependents, what cover do *you* need? If you die, for you, the war is over.
But, if you live, you'll still need to pay the mortgage lender in the event you're simply at home getting over a broken back, a stroke, being laid off etc. You might want to consider life cover for yourself too, of course, to help your sister. But in the event you have a partner later in life who for whatever reason doesn't get on with your sister, and the money goes to your partner, and if you want to ringfence any payment to your sister, write the insurance cover into trust at outset.
Check any death in service occupational benefits that you might have, and check who the nominated beneficiary is of any pension that you may have - signifying that you want some or all of those benefits to go to your sister in lieu of taking out life cover might be cheaper.
Ginge R said:
Check any death in service occupational benefits that you might have,
Never rely on death in service cover. Great if you die in an accident, but no good if you die of some terrible illness, because you won't be in service when you die. They'll have let you go after a few months of being off work. Death in service should be looked upon as a possible bonus for your family, not treated as part of your insurance portfolio.
It's an option, and depends on a wide degree of circumstances. I have a client who flies in a world famous military aerobatic team and he supplemented his occupational death in service benefits, with private cover for that very reason. He could handle the additional premium rating at the time, as a fast jet pilot, but the rating for his current role which required a finer degree of flying skill, would have crippled him. Jockman said, yesterday, get your insurance early.. I couldn't agree more.
Some company schemes will pay out early - and pension companies tend to use the term ‘serious ill-health’ when describing someone having a life expectancy of less than one year. So, even though you may be medically diagnosed as ‘terminally ill’ you could still have several years to live, and the rules governing pension benefits are more rigid. In the event of paying out early, pension schemes can only consider ‘serious ill-health’ - or someone having less than one year to live.
If OP, as a pension scheme member, is seriously/terminally ill and does not expect to live longer than a year, he can apply to exchange all of his benefits for a one-off, usually tax-free, lump sum payment. Disability Discrimination Act legislation will probably apply if you reported a serious or terminal illness, which is likely to fall under the definition of a disability (standing by to be corrected on that point).
Pension/life cover benefits will automatically transfer to a legal partner at the point of death, but, as suggested, OP may wish to change this or in cases where they do not have a legal partner, he may wish to nominate his sister in any given proportion, rather than have benefits transfer automatically to an estate, or via the rules of intestate. But, you make a good point - death in service benefits only apply for as long as you have the job. I take death in service benefits into account when dealing with clients - but they are made aware of the circumstances as you describe.
Some company schemes will pay out early - and pension companies tend to use the term ‘serious ill-health’ when describing someone having a life expectancy of less than one year. So, even though you may be medically diagnosed as ‘terminally ill’ you could still have several years to live, and the rules governing pension benefits are more rigid. In the event of paying out early, pension schemes can only consider ‘serious ill-health’ - or someone having less than one year to live.
If OP, as a pension scheme member, is seriously/terminally ill and does not expect to live longer than a year, he can apply to exchange all of his benefits for a one-off, usually tax-free, lump sum payment. Disability Discrimination Act legislation will probably apply if you reported a serious or terminal illness, which is likely to fall under the definition of a disability (standing by to be corrected on that point).
Pension/life cover benefits will automatically transfer to a legal partner at the point of death, but, as suggested, OP may wish to change this or in cases where they do not have a legal partner, he may wish to nominate his sister in any given proportion, rather than have benefits transfer automatically to an estate, or via the rules of intestate. But, you make a good point - death in service benefits only apply for as long as you have the job. I take death in service benefits into account when dealing with clients - but they are made aware of the circumstances as you describe.
TwigtheWonderkid said:
Never rely on death in service cover. Great if you die in an accident, but no good if you die of some terrible illness, because you won't be in service when you die. They'll have let you go after a few months of being off work.
Death in service should be looked upon as a possible bonus for your family, not treated as part of your insurance portfolio.
Indeed..............you would not believe (or perhaps you may) the amount of people who are happy to hang their family's financial future on DIS....Death in service should be looked upon as a possible bonus for your family, not treated as part of your insurance portfolio.
I also seem to have an inordinate amount of immortal clients
Thanks for your comments. Yes, absolutely, it's me that's needs the cover for my sister (hence why I'll be paying the premiums). It's useful to know that the lender wouldn't just call in the mortgage in the event of one of us dying. But at best I'd be stuck on their standard interest rate, as I wouldn't be able to transfer the mortgage due to affordability rules. And from what I gather in a recent thread on here, the industry is now suggesting stopping simple rate refixes without going through new affordability and credit checks?
To clarify a few things - sister doesn't contribute towards the mortgage repayments, the agreement is that I cover them all (and her share of ownership is limited to the %age from her cash deposit (we both put 60k in to buy the house). She lives rent free with parents, and has no dependents, so no medium term worries about the effects of her losing her income. She has a reasonable employer pension scheme, but I am self employed, so I only have a (recently started) SIPP, that only has a tiny amount in it. So no DIS benefits for me.
I do have dependents (3 children, all under 10), but they only live with me part time (technically, they're resident with Mum). I realise that I desperately need to get a will sorted out, but my intention is to leave anything/everything in trust to the 3 kids, which I believe is the default scenario anyway. I'm intending for my parent's and sister to be trustee's. I suppose it may be prudent to have some life insurance towards maintaining my kids, but until they are adult, it needs to be drip fed through my ex anyway. Maybe I should have life cover equal to my sister (joint policy) to benefit my children in the medium term (until they're adults). Having said that the would be in line to inherit from my parents estate, but since my paternal granddad lived to 100, it's not unreasonable that my dad could have another 30 years left (I'm hoping so anyway). So if he outlives me, my kids could be mid 30's before they inherit from grand parents.
I think a 30 year joint policy for me and my sister is coming in at about £25/month, which doesn't sound like much at all as an ongoing cost. But my main focus at present is on reducing (by overpaying) the mortgage as quickly as possible, while interest rates are low.
When you say to start your life insurance early, are you able to give figurative examples of the benefit of this? I appreciate that the premiums will increase the alter you take out the insurance, but is that fully offset by the savings from what I haven't already been paying?
To clarify a few things - sister doesn't contribute towards the mortgage repayments, the agreement is that I cover them all (and her share of ownership is limited to the %age from her cash deposit (we both put 60k in to buy the house). She lives rent free with parents, and has no dependents, so no medium term worries about the effects of her losing her income. She has a reasonable employer pension scheme, but I am self employed, so I only have a (recently started) SIPP, that only has a tiny amount in it. So no DIS benefits for me.
I do have dependents (3 children, all under 10), but they only live with me part time (technically, they're resident with Mum). I realise that I desperately need to get a will sorted out, but my intention is to leave anything/everything in trust to the 3 kids, which I believe is the default scenario anyway. I'm intending for my parent's and sister to be trustee's. I suppose it may be prudent to have some life insurance towards maintaining my kids, but until they are adult, it needs to be drip fed through my ex anyway. Maybe I should have life cover equal to my sister (joint policy) to benefit my children in the medium term (until they're adults). Having said that the would be in line to inherit from my parents estate, but since my paternal granddad lived to 100, it's not unreasonable that my dad could have another 30 years left (I'm hoping so anyway). So if he outlives me, my kids could be mid 30's before they inherit from grand parents.
I think a 30 year joint policy for me and my sister is coming in at about £25/month, which doesn't sound like much at all as an ongoing cost. But my main focus at present is on reducing (by overpaying) the mortgage as quickly as possible, while interest rates are low.
When you say to start your life insurance early, are you able to give figurative examples of the benefit of this? I appreciate that the premiums will increase the alter you take out the insurance, but is that fully offset by the savings from what I haven't already been paying?
MJB
Three? These days, it costs c.£230,000 to raise one child:
https://www.theguardian.com/lifeandstyle/2016/feb/...
I'm not advocating any particular course of action or sum, but if you considered getting life cover, putting it in trust, and increasing your premiums in line with inflation, underneath are boggo standard £300,000 life cover indications (subject to underwriting etc) at ages 20, 30, 40 and 50 (to age 60). Remember - the older you get, the more knocks you get, the thicker your medical file gets, and potentially, the more exclusions and premium hikes you're potentially subject to. Please note: this is not advice, I'm not suggesting life cover is what you do or don't need, or that the premiums could apply to you in your given scenario.. I'm just offering you a hypothetical idea of how age impacts on premium for a non smoking male.
Edit: Just seen Sarnie's comment, kicking the bucket safe in the knowledge you screwed the insurance company out of an extra few quid a month isn't the point. Insurance is the one 'investment' you don't want to pay out. I had a discussion with someone who paid, all in all, nearly £30 a month for garden shed (only a lawn mower in it), washing machine, phone, tablet and tv cover. But would he consider paying £18 a month for life cover? "Nah, it's a rip off!". He had two kids. In fairness, it was a hoofing great telly. 
Edit: Screen grabs now removed for legibility.
Three? These days, it costs c.£230,000 to raise one child:
https://www.theguardian.com/lifeandstyle/2016/feb/...
I'm not advocating any particular course of action or sum, but if you considered getting life cover, putting it in trust, and increasing your premiums in line with inflation, underneath are boggo standard £300,000 life cover indications (subject to underwriting etc) at ages 20, 30, 40 and 50 (to age 60). Remember - the older you get, the more knocks you get, the thicker your medical file gets, and potentially, the more exclusions and premium hikes you're potentially subject to. Please note: this is not advice, I'm not suggesting life cover is what you do or don't need, or that the premiums could apply to you in your given scenario.. I'm just offering you a hypothetical idea of how age impacts on premium for a non smoking male.
Edit: Just seen Sarnie's comment
, kicking the bucket safe in the knowledge you screwed the insurance company out of an extra few quid a month isn't the point. Insurance is the one 'investment' you don't want to pay out. I had a discussion with someone who paid, all in all, nearly £30 a month for garden shed (only a lawn mower in it), washing machine, phone, tablet and tv cover. But would he consider paying £18 a month for life cover? "Nah, it's a rip off!". He had two kids. In fairness, it was a hoofing great telly. Edit: Screen grabs now removed for legibility.
Edited by Ginge R on Thursday 8th December 14:21
Yes, I left that in for transparency, but it might not apply in all or part. Commission on protection isn't covered by RDR (newish advisory guidance) although some advisers will vary the amount by rebating or operating on a fixed fee basis instead.
I mainly deal with younger clients who have complicated personal circumstances and that require a fair bit of work, so I don't rebate too generously, although I do offer a fixed fee for my personal service - i.e, non robo - for establishing investments and retirement planning, regardless of the amounts being invested (which, in contrast, is pretty much a constant in terms of work required).
A boggo standard protection case for a fit and healthy, young office worker could, conceivably, justify a fee or healthy rebate if it's going to whistle through. That's down to the circumstances, the overall work being done, the adviser and the client though - all are unique. For most credible advisers, insurance is no longer the fatted calf it once used to be seen as (before my time, anyway..), and levies and various other overhead take a bigger and bigger slice.
I mainly deal with younger clients who have complicated personal circumstances and that require a fair bit of work, so I don't rebate too generously, although I do offer a fixed fee for my personal service - i.e, non robo - for establishing investments and retirement planning, regardless of the amounts being invested (which, in contrast, is pretty much a constant in terms of work required).
A boggo standard protection case for a fit and healthy, young office worker could, conceivably, justify a fee or healthy rebate if it's going to whistle through. That's down to the circumstances, the overall work being done, the adviser and the client though - all are unique. For most credible advisers, insurance is no longer the fatted calf it once used to be seen as (before my time, anyway..), and levies and various other overhead take a bigger and bigger slice.
mjb1 said:
When you say to start your life insurance early, are you able to give figurative examples of the benefit of this? I appreciate that the premiums will increase the alter you take out the insurance, but is that fully offset by the savings from what I haven't already been paying?
Generally speaking they get more expensive but mine actually decreased - I gave up smoking !!I would only ever do Level Term as this doesn't necessarily need increasing as you move up the housing ladder with increased mortgage requirements.
Thanks all, especially Ginge R, that's very useful. Only thing that I would contest is the cost of raising a child of £230k. Assuming a flat rate over 20 years, my 3 should be costing £35k/year. That's more (quite a lot more) than our household income was when we were together. Maybe they get more expensive as the get older.
On a semi related note, I'm considering suspending my (modest) SIPP contributions for a couple of years and use the money towards over paying my mortgage instead. Obviously, I'm waiving the tax relief to do that, just trying to weigh up whether the interest saving on the mortgage will offset that over the long term. Admittedly it doesn't at present, while rates are so low, but I'm eager to reduce my mortgage before rates increase (which has to happen, hopefully later rather than sooner).
To put it in perspective, if I continue saving into my SIPP at the current rate, I'll only have made less than £50k of contribution towards it by retirement age. I'm conscious that's a pitiful amount, and I'll need to triple my contributions build it into even a modest retirement fund.
On a semi related note, I'm considering suspending my (modest) SIPP contributions for a couple of years and use the money towards over paying my mortgage instead. Obviously, I'm waiving the tax relief to do that, just trying to weigh up whether the interest saving on the mortgage will offset that over the long term. Admittedly it doesn't at present, while rates are so low, but I'm eager to reduce my mortgage before rates increase (which has to happen, hopefully later rather than sooner).
To put it in perspective, if I continue saving into my SIPP at the current rate, I'll only have made less than £50k of contribution towards it by retirement age. I'm conscious that's a pitiful amount, and I'll need to triple my contributions build it into even a modest retirement fund.
mjb1 said:
On a semi related note, I'm considering suspending my (modest) SIPP contributions for a couple of years and use the money towards over paying my mortgage instead. Obviously, I'm waiving the tax relief to do that, just trying to weigh up whether the interest saving on the mortgage will offset that over the long term. Admittedly it doesn't at present, while rates are so low, but I'm eager to reduce my mortgage before rates increase (which has to happen, hopefully later rather than sooner).
To put it in perspective, if I continue saving into my SIPP at the current rate, I'll only have made less than £50k of contribution towards it by retirement age. I'm conscious that's a pitiful amount, and I'll need to triple my contributions build it into even a modest retirement fund.
This would not be wise...The pension goes in tax free, grows tax free and is paid out tax free (if you only have a small pension income, below the income tax threshold). If your pension is invested in the normal stuff - e.g. equity tracker funds and long dated bond tracker funds, would you expect it to grow by more than 2%.To put it in perspective, if I continue saving into my SIPP at the current rate, I'll only have made less than £50k of contribution towards it by retirement age. I'm conscious that's a pitiful amount, and I'll need to triple my contributions build it into even a modest retirement fund.
The paying down your mortgage comes out of taxed income, and saves you, what 2%? So you miss tax relief, and you pay income tax, and it is lower yielding.
Coming back to this, I've pretty much decided to take out 125k of life cover and 25k of critical illness cover for myself (£20/month), and £125k straight life cover for my sister (£14/month), both on a level term for 25 years. I was intending to have a joint policy for the two of us, but due to my sister being a smoker and considerably over weight it wasn't viable.
My cover is with Vitality, I'm led to believe that their critical illness policy is pretty decent?
My cover is with Vitality, I'm led to believe that their critical illness policy is pretty decent?
My cover is with Vitality, I'm led to believe that their critical illness policy is pretty decent?
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Vitality is good and you can include extra benefits to monitor and improve your health such as half price gym membership etc. Vitality certainly cover more illnesses which is why it is a serious illness policy not a critical illness policy.
It is a bit worrying that the compensation companies are considering turning their attention to this type of policy i.e. have you paid a higher premium when you will never make use of the additional benefits (a bit like linked current accounts). Level term insurance arranged to cover a repayment mortgage is also on their hit list when PPI ends as the FCA regard decreasing sum assured as the default product to protect a repayment mortgage.
[/quote]
Vitality is good and you can include extra benefits to monitor and improve your health such as half price gym membership etc. Vitality certainly cover more illnesses which is why it is a serious illness policy not a critical illness policy.
It is a bit worrying that the compensation companies are considering turning their attention to this type of policy i.e. have you paid a higher premium when you will never make use of the additional benefits (a bit like linked current accounts). Level term insurance arranged to cover a repayment mortgage is also on their hit list when PPI ends as the FCA regard decreasing sum assured as the default product to protect a repayment mortgage.
mjb1 said:
Coming back to this, I've pretty much decided to take out 125k of life cover and 25k of critical illness cover for myself (£20/month), and £125k straight life cover for my sister (£14/month), both on a level term for 25 years. I was intending to have a joint policy for the two of us, but due to my sister being a smoker and considerably over weight it wasn't viable.
My cover is with Vitality, I'm led to believe that their critical illness policy is pretty decent?
I was advised to have the same CI as Life as people are likelier to need CI, than actually die in the mortgage term.My cover is with Vitality, I'm led to believe that their critical illness policy is pretty decent?
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