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).
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?
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.
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?
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