[UK] Life & Critical Illness Insurance - I Am Totally Lost

[mrkmmvl]

I live in London, 31, pregnant wife. Just bought a property for 530K. I own a company and pay myself 50K a year. My wife earns 44K. I have about 100K in my pension and 40K in my S&S ISA + Other maybe 20K in savings. My wife has about 20K in her pension and her ISA is smaller.

Now for the first time I'm looking into life insurance, and I find the process dreadful, just like everyone else probably.

The bogleheads guide mentions to definitely get Income protection, Critical Illness protection and also Life insurance. It says get the biggest excess possible, and get the longest cover possible.

Now my problem is that I have yet to find a positive review of someone actually making a claim. All the 5 star reviews are from people who just bought the cover and they are happy with the sales person and the price. I don't care about that, I want to make sure that the insurance company I pick will actually be helpful when we need to make the claim. But all those reviews are one start, from any insurance company.

At this point I'm just thinking that I really do not want to throw money out of the window when all I can get is more problems in a situation when something horrible has happened.

• Does anyone here have any positive experiences or can anyone recommend an insurance company?

• What is the consensus for the 3 Insurance types for UK Bogleheads?
  

Many thanks for your help.

[mrkmmvl]

I should add that I received one quote from one broker. Most of his policies are from Legal & General which have 2.2 stars on Google... But I find it really hard to gauge whether this is a good offer or not:

Income Protection for wife:

Legal & General - Income Protection
Benefit £2,300
Term To Age 68
Premium Type Guaranteed
Benefit Period Full Term
Deferred Period 26 weeks
Type of Cover Index-Linked
Premium £32.49

I have index-linked the monthly benefit for you on the Income Protection meaning that the monthly benefit will increase annually in line with inflation. The premiums for the shorter 26-week deferred period are highlighted in red; given the minimal increase in premium to shorten the deferred period, I would recommend considering the 26-week option instead of the 52-week quote.

Joint Decreasing Life Insurance:

Legal & General - Decreasing Life Insurance
Sum Assured £388,269
Critical Illness Cover Not Included
Term 30 years
Type of Cover Decreasing
Type of Premium Guaranteed
Premium £20.13

The life insurance will cover you both, will pay into a Trust if claimed upon and will gradually decrease over time in line with your mortgage repayments.

Joint Critical Illness Cover:

Legal & General - Level Life and Critical Illness Cover
Sum Assured £100,000
Critical Illness Cover £100,000
Term 30 years
Type of Cover Index-Linked
Type of Premium Guaranteed
Premium £73.83

Relevant Life Insurance for Husband:

Vitality - Relevant Life
Sum Assured: £500,000
Critical Illness Cover: Not Included
Term: 30 years
Type of Cover: Index-Linked
Type of Premium: Guaranteed
Premium: £24.02

Executive Income Protection cover for husband:

Legal & General
Executive Income Protection
Benefit £3,333
Term To Age 68
Premium Type Guaranteed
Benefit Period Full Term
Deferred Period 26 weeks
Type of Cover Index-Linked
Premium £48.56

[Valuethinker]

I should add that I received one quote from one broker. Most of his policies are from Legal & General which have 2.2 stars on Google... But I find it really hard to gauge whether this is a good offer or not:

Income Protection for wife:

Legal & General - Income Protection
Benefit £2,300
Term To Age 68
Premium Type Guaranteed
Benefit Period Full Term
Deferred Period 26 weeks
Type of Cover Index-Linked
Premium £32.49

I have index-linked the monthly benefit for you on the Income Protection meaning that the monthly benefit will increase annually in line with inflation. The premiums for the shorter 26-week deferred period are highlighted in red; given the minimal increase in premium to shorten the deferred period, I would recommend considering the 26-week option instead of the 52-week quote.

Check the quote 26 weeks v 52 weeks. From memory, I found 90 days was about the "sweet spot" where after that, you didn't win much reduction in monthly premium.

You are right to search for index-linked, but note the premium will rise faster than inflation (1.3x in my case ie a 5% RPI => 6.5% premium increase).

You may not need to age 68. By age 60, you may have sufficient assets that you don't need this.

Note that the way this works is a there is a maximum of (60-65% usually) of pre disability earnings. So say your spouse's earnings in the year before disability were 2000 pcm. Then the max they would receive from this policy would be c. £1300 pcm.

Joint Decreasing Life Insurance:

Legal & General - Decreasing Life Insurance
Sum Assured £388,269
Critical Illness Cover Not Included
Term 30 years
Type of Cover Decreasing
Type of Premium Guaranteed
Premium £20.13

The life insurance will cover you both, will pay into a Trust if claimed upon and will gradually decrease over time in line with your mortgage repayments.

When I priced these, I found it wasn't particularly good value against just covering the full principal of the mortgage, for the full term of the mortgage.

Also joint policies weren't particularly good value. Or at least I understood that there could only ever be one payout. If you are dependent upon your spouse's income to repay the mortgage, then perhaps this does work.

Joint Critical Illness Cover:

Legal & General - Level Life and Critical Illness Cover
Sum Assured £100,000
Critical Illness Cover £100,000
Term 30 years
Type of Cover Index-Linked
Type of Premium Guaranteed
Premium £73.83

I figured the Critical Illness just wasn't worth it. A big premium, and then a restricted series of conditions. I may have been wrong in this, but have been fortunate enough not to test it. I figured whilst I was alive, Disability Insurance would protect us (+ savings) and when I was gone, the payout on the single life Term Life Assurance would do so.

Relevant Life Insurance for Husband:

Vitality - Relevant Life
Sum Assured: £500,000
Critical Illness Cover: Not Included
Term: 30 years
Type of Cover: Index-Linked
Type of Premium: Guaranteed
Premium: £24.02

OK I just went with a straight level amount. Yes, inflation eats away at what the benefit was worth. But our assets would be growing as well. If inflation had stayed high (as it was in 2022) that would have been a bad bet, but in practice, it was not.

If you have children, then there's a peak around age 14-18 say when insurable need is largest (correspondingly bigger if they are in private education) and then it drops away.

Remember the mantra "to leave the surviving spouse in as good a financial position as if you were still there". That's not at all a bad one if you have kids, because they may well not be able to continue with their career (in the same way) if they are a widow/er. If you do not, then that might be over-insuring. EDIT. Sorry I missed the point re pregnancy. Your need is fairly huge and so you should go for the lowest cost way of doing that (term life).

Executive Income Protection cover for husband:

Legal & General
Executive Income Protection
Benefit £3,333
Term To Age 68
Premium Type Guaranteed
Benefit Period Full Term
Deferred Period 26 weeks
Type of Cover Index-Linked
Premium £48.56

[/quote]

See comments as above.

If you want to simplify:

- yes you should have disability insurance. Self insuring for up to 52 weeks may be a good option

- a life policy covering the mortgage principal + some reasonable level of additional money might be enough. One on the life of each of the couple.

- it's not wrong to have increasing life cover with inflation, but you should also be building your asset base over time, therefore in principle less need for insurance

- I think you could probably do without Critical Illness insurance? Besides accidents, your most significant risk is cancer (which may not be fatal) and your disability policy would kick in, *eventually*. Basic term life is incredibly price competitive so I think insurers load profitability (and commission) onto Critical Illness cover (I am not sure of that, though). So run the scenarios in your mind of disaster happening with/ without CI cover - can you cope in the latter situation?

My term life assurance is with Legal & General. With straight term life, there did not seem to be much reason to do it on anything other than cost. The policy service of a death would seem to be very simple. Due to an accident (with no long term consequences) when we increased the mortgage I couldn't get other cover, and so the clause that allowed me to increase the L&G policy (by about another 20%) at the existing rate was quite useful.

As to long term Disability insurance. That, it will matter more (you need an "own occupation" definition of disability). And I don't know the providers that well.

[Valuethinker]

Couple of other points:

- income protection for wife but not you?

1. does she have coverage from her employer? You can not insure (from all policies in total) more than 60-65% of income. And I believe most insurers will decline to underwrite a pregnant individual.

Employer coverage is weaker - only a personal policy provides real protection. Or is this a policy on your income in her favour? (That would make more sense)

2. £500k increasing with inflation does make more sense to me - given your wife is expecting. I'd price that against simply buying a larger amount now. I am assuming the assumption there is your income will grow over time, and so 10x income will also grow.

20 v 30 years term is always an interesting one. In principle, in 20 years time you should be past peak insurance needs - you will have retired some of your mortgage, you will have savings & investment, your child will be off to college (hopefully). However you might have another child. You might trade up to a bigger house. So it's not a slam dunk either way.

[mrkmmvl]

Couple of other points:

- income protection for wife but not you?

Income protection for me is the last one: Executive Income protection which would be paid through the LTD and paid to my wife through a trust. She does have 4x yearly income from her job, but she will be leaving / changing jobs when we have the kid.

20 v 30 years term is always an interesting one. In principle, in 20 years time you should be past peak insurance needs - you will have retired some of your mortgage, you will have savings & investment, your child will be off to college (hopefully). However you might have another child. You might trade up to a bigger house. So it's not a slam dunk either way.

I'm not sure I understand this, do you mean that the 20 year term is a good option as opposed to 30 years as it is cheaper and good enough?

[mrkmmvl]

If you want to simplify:

- yes you should have disability insurance. Self insuring for up to 52 weeks may be a good option

- a life policy covering the mortgage principal + some reasonable level of additional money might be enough. One on the life of each of the couple.

- it's not wrong to have increasing life cover with inflation, but you should also be building your asset base over time, therefore in principle less need for insurance

- I think you could probably do without Critical Illness insurance? Besides accidents, your most significant risk is cancer (which may not be fatal) and your disability policy would kick in, *eventually*. Basic term life is incredibly price competitive so I think insurers load profitability (and commission) onto Critical Illness cover (I am not sure of that, though). So run the scenarios in your mind of disaster happening with/ without CI cover - can you cope in the latter situation?

My term life assurance is with Legal & General. With straight term life, there did not seem to be much reason to do it on anything other than cost. The policy service of a death would seem to be very simple. Due to an accident (with no long term consequences) when we increased the mortgage I couldn't get other cover, and so the clause that allowed me to increase the L&G policy (by about another 20%) at the existing rate was quite useful.

As to long term Disability insurance. That, it will matter more (you need an "own occupation" definition of disability). And I don't know the providers that well.

By disability insurance, do you mean critical life insurance or income protection?

I'm really struggling to pick between critical life insurance and income protection. It seems to be like they serve a very similar purpose.

My logic is this: Based on the data (and the claims statistics) I am much more likely to get critically ill than die. But the critical life insurance will pay out a lot more than income protection, but it is (therefore) also more expensive.

I saw online that many people have life insurance + critical illness insurance for about £44 a month. That seems a lot less than what I got quoted.

[Valuethinker]

If you want to simplify:

- yes you should have disability insurance. Self insuring for up to 52 weeks may be a good option

- a life policy covering the mortgage principal + some reasonable level of additional money might be enough. One on the life of each of the couple.

- it's not wrong to have increasing life cover with inflation, but you should also be building your asset base over time, therefore in principle less need for insurance

- I think you could probably do without Critical Illness insurance? Besides accidents, your most significant risk is cancer (which may not be fatal) and your disability policy would kick in, *eventually*. Basic term life is incredibly price competitive so I think insurers load profitability (and commission) onto Critical Illness cover (I am not sure of that, though). So run the scenarios in your mind of disaster happening with/ without CI cover - can you cope in the latter situation?

My term life assurance is with Legal & General. With straight term life, there did not seem to be much reason to do it on anything other than cost. The policy service of a death would seem to be very simple. Due to an accident (with no long term consequences) when we increased the mortgage I couldn't get other cover, and so the clause that allowed me to increase the L&G policy (by about another 20%) at the existing rate was quite useful.

As to long term Disability insurance. That, it will matter more (you need an "own occupation" definition of disability). And I don't know the providers that well.

By disability insurance, do you mean critical life insurance or income protection?

I'm really struggling to pick between critical life insurance and income protection. It seems to be like they serve a very similar purpose.

My logic is this: Based on the data (and the claims statistics) I am much more likely to get critically ill than die. But the critical life insurance will pay out a lot more than income protection, but it is (therefore) also more expensive.

I saw online that many people have life insurance + critical illness insurance for about £44 a month. That seems a lot less than what I got quoted.

So I would say Critical Illness insurance serves a completely different purpose than Long Term Disability (North American term) or "income protection" (UK term?).

CI I view as "bells and whistles". Focuses on salient things that can go wrong. Raises the cost of what is actually a pretty clean, basic and low cost item (ie term life assurance). Term life is so very cheap when you are young (it stops being so once you get past a certain age range (early 40s?) and

Income protection I view as essential. An inability to work your chosen profession due to partial or full illness. Only a contract between you and the insurer provides real protection (many jobs, you just have to go with what your employer has, and that's much weaker).

I don't agree that IP will pay out less than CI? When I looked at the odds, at age 30 I had something like a 50% chance (?) of full or partial disability before age 65. Chances of dying were much lower. And term life assurance really covers dying. If you think about 15 years on disability insurance (with inflation indexation)... that's a lot of money. Also if you pay the premium yourself, as I understand the position, the benefit is then tax free (so the 50-65% coverage ratio basically puts you in the same place).

I would concentrate on having enough term life: whether at the beginning or an inflation-indexed policy (as you have quotes, above). Enough that if the insured dies, the other partner (plus the child) have a similar standard of living (for example, paying off the mortgage). Then move on to Income Protection: what if you or your spouse could not work? As I said, I am (somewhat) surprised they would even quote on a pregnant woman - usually very adverse to that. And be aware the actual benefit paid is as a percentage of what you earned (in the year before?) you were deemed disabled - regardless of what income you insured on at the time of taking out the policy.

(Does your mortgage not require you to have a level of life coverage equal to the outstanding principal on the loan? I vaguely remember that when I first took out a mortgage).

On your spouse's income protection policy, if she knows she is going to change job, that may be material. You have to be really careful of situations like this, where there is a material fact that would matter to the insurer. It's like if you knew you were going to take up skydiving - in court, they could argue that when you took out the policy you knew you were planning to take up a risky pasttime, and so they don't need to pay out. So you have to make a judgement call as to what you know (ie is this a possibility rather than a certainty) and so would have to say in court, sworn testimony, that you did/ did not know at the point where you took out insurance.

Just checking your income protection will run to age 60 or 61? That should be long enough because by then hopefully you would have enough assets to cover a forced retirement due to disability.

[Valuethinker]

Couple of other points:

- income protection for wife but not you?

Income protection for me is the last one: Executive Income protection which would be paid through the LTD and paid to my wife through a trust. She does have 4x yearly income from her job, but she will be leaving / changing jobs when we have the kid.

20 v 30 years term is always an interesting one. In principle, in 20 years time you should be past peak insurance needs - you will have retired some of your mortgage, you will have savings & investment, your child will be off to college (hopefully). However you might have another child. You might trade up to a bigger house. So it's not a slam dunk either way.

I'm not sure I understand this, do you mean that the 20 year term is a good option as opposed to 30 years as it is cheaper and good enough?

If you were buying £1m of life insurance, it might be the 20 year term was affordable, and the 30 year term was not. However generally life insurance at your age is so cheap, that a 30 year policy is appropriate. For middle class savers & investors, I question whether there's much need of life insurance in your 60s -- but of course life is long. I think my suggestion is perhaps more appropriate for someone in their 40s, therefore.