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Best value life cover?

Protection | Crtitical Illness Helpful? 3

Asked by vyronstar, submitted 26 March 2012.

Open Quote For a young couple starting with their first home together is it cheaper/better to have:

a. Mortgage Insurance cover separate from Life Insurance
b. Mortgage Insurance term or decreasing
c. Add Critical Illness Insurance to either Mortgage or Life insurance rather than a stand alone Insurance
d. Term Life Insurance or Whole of Life Insurance

Excellent info on your site & even better knowing it's impartial.
End Quote

Answered by Justin on 07 September 2012

Thanks, glad you like the site.

To answer question 'd' first, I'd almost certainly consider term assurance rather than a whole of life policy in your position. It'll be a lot cheaper and it's far more straightforward. The main reason for wanting a whole of life policy is to guarantee a payout regardless of the age you die in future. If you just want cover for the next 20 or so years then term assurance is far more sensible.

The next point to consider is whether to buy a joint life policy that pays out on the first death or an individual policy each. The former should be fine and cheaper, although individual policies may be appropriate if one of you already has sufficient cover, e.g. via an employer, or you'd want a 'double' payout to pass to children (or other financial dependents) in the event you were to both pass away during the term of the policies.

If your mortgage is repayment (rather than interest-only) then you could save some money using a decreasing term assurance policy - where the sum assured reduces with the outstanding mortgage over time. Alternatively, you could just use conventional cover with any surplus not required to repay the mortgage available for your financial dependents.

If the latter, it's usually cheaper to buy just one policy for the whole sum you want assured rather than two smaller policies adding up to the same sum. Just check your mortgage lender doesn't require a specific separate policy (it's unlikely they will).

Critical illness cover, whether stand alone or combined with term assurance, is expensive - a sad reflection of the prevalence of critical illness amongst the middle aged. If you're on a tight budget it may be unaffordable, otherwise it's a case of deciding whether it's something you want to pay for. In any case, it tends to be cheaper when bought combined with term assurance in a single policy than standalone.

I think the best thing to do is have a play with a life cover quote engine on a discount broker or comparison website. Aside from finding a good deal, you can compare the various permutations you've mentioned. As a quick guide, I spent a few minutes putting together the following table:

Policy TypeMaleFemale
Level term assurance (single life)£7.14£5.68
Level term assurance (joint life 1st death)£10.62
Critical illness£28.58£31.37
Level term assurance with critical illness£25.99£28.00
Monthly premiums for 30 year old non-smoking couple, £200,000 sum assured over 20 years, level term assurance fixed premiums.

A couple of final pointers. Always opt for guaranteed premiums rather than reviewable - this avoids the potential for nasty premium hikes in future. And write the life policy in a flexible trust (the insurer will provide a form), to ensure any payout goes directly to the beneficiary(s) rather than into your estate, where it might be taxed and probate will slow down the money reaching where it's needed.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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