Insurance: Failing to think the unthinkable

Many Britons are seriously under-insured, says Kate Hughes, but it's also vital not to overpay for policies

The number of mortgages approvals across the country picked up in April, with the largest increase in lending agreements since the heady pre-crisis days of 2008. Thanks in large part to schemes such as Funding for Lending, the Council of Mortgage Lenders estimates there was a 4 per cent rise in lending to homebuyers to £12.1bn, from £11.6bn in March, in the last month alone.

That's good news for the housing market and the economy in general – and perhaps even for the man on the street somewhere down the line. But with an increase in mortgage activity comes a rise in the dizzying array of products and services sold alongside those home loans. That's complicated and confusing for most of us, but particularly for the thousands of first-time buyers – 19,000 of them in March alone – trying to pick their way through the paperwork and legal promises. And simply taking the first product offered could end up costing a fortune, especially when that product is life insurance.

Nobody wants to pay for something they hope they never need, let alone think about what would happen to their families if they died suddenly. These are the main reasons why there is a £2.4trn protection gap in the UK – with most households exposed to financial catastrophe in the event of unemployment, illness or death. However, while life insurance should be a bedrock of family finances, it needs to be purchased with care. A recent YouGov survey found that more than half of those who have bought life insurance did so to secure their mortgage repayments, keen to protect their loved ones from losing their home if they died suddenly.

But simply accepting the first policy offered could cost you thousands of pounds in the long run as the difference between the cheapest and most expensive life insurance premiums can be hundreds of pounds a month. There is absolutely no obligation to purchase the policy offered alongside your mortgage agreement. Nor do you have to stick with it if you have.

"A new mortgage is a big commitment, so naturally people want to ensure they are protecting their families in the event of a death," says Matthew Gledhill, managing director at the insurance provider Beagle Street. "For convenience, people tend to take out new policies alongside a new mortgage. This often means that they accept the first quote provided, which could be hugely inflated. But it's not too late; you can exit your life policy at any time if you find a better deal. These days it is just as important – and just as easy – to shop around for life cover as it is for home and car insurance."

But while it is often the first type of cover that springs to mind, life insurance isn't the only, or always the best, type to consider, warns Kevin Carr, chief executive of the Protection Review, which provides commentary on the insurance market. "Life cover is the most commonly bought product because it's the cheapest, but it's the cheapest for a reason," he says. "We are five to six times more likely to be alive but seriously ill [and/or too ill to work] than we are to pop our clogs, which means that products such as critical illness and income protection are more important."

It's crucial for those looking for insurance to know exactly what they'll be covered for and under what circumstances, experts warn. Life insurance is the most straightforward type of personal protection, paying out a lump sum to your family if you die during the term of the policy – the period for which you wish to be covered.

Many people base this on the age of their children and how long they would be financially dependent, for example. Premiums are calculated according to the amount of time for which you want to be insured and how big the lump sum payout would be, as well as your age, lifestyle and health

Critical illness cover is designed to ease the financial pressure if you become ill or severely disabled, or even if your children do. This cover pays out benefits upon diagnosis of one of a range of different serious illnesses. These can vary between policy providers but all should include cancer, heart attack, kidney failure, major organ transplant, multiple sclerosis and a stroke. The cost of the premiums will also depend on your state of health, lifestyle and family history. Read the small print to ensure you are clear on what is and isn't covered.

Income protection covers you in the event of an accident, unemployment or illness. After an agreed period, usually between one and 12 months, it pays out a proportion of your monthly income – every month until you retire if necessary. (This is not be confused with short-term payment protection insurance, which only pays out for a year or two and is a completely different product). Monthly premiums will depend, once again, on your age, health, the waiting period involved, and the amount to be paid out every month.

"When looking at mortgage cover, think about the cost of living in the house as well as the mortgage itself," warns Mr Carr.

"It's one thing paying off the mortgage, but the bills don't end there. Couples should always consider buying a policy each, rather than a joint one, because it is often much better value for money."

Case study: 'We would advise any family trying to reduce their outgoings to shop around for life cover'

Father of two James Samuel (34), from Kingston in Surrey, purchased life insurance and critical illness cover alongside his interest-only mortgage four years ago, paying £168 a month.

James, an exhibition organiser, and wife Monica, a physiotherapist at Great Ormond Street hospital, were spurred into shopping around for new cover after the birth of their second child. James said: "We decided to re-mortgage and move to a repayment option on our house, so it seemed a perfect time to see if we could also save money on our life and critical illness cover."

James added: "As we now have critical illness benefits through our work, we didn't need to be paying out heavily for that too, which allowed us to reduce our costs further."

The couple now pay just £20 a month for £265,000 of life insurance over 30 years, which covers both of them. The money saved on the life insurance means they can easily cover the increased mortgage payments.

"We would advise any family looking at reducing their outgoings to shop around for life cover," James says. "I really didn't think we could save as much as we did, but the money we now save means we are finally chipping away at our mortgage."

News
peopleHowards' Way actress, and former mistress of Jeffrey Archer, was 60
Sport
Chelsea are interested in loaning out Romelu Lukaku to Everton again next season
sport
News
Robyn Lawley
people
Life and Style
Troy Baker and Ashley Johnson voice the show’s heroes
gamingOnce stilted and melodramatic, Hollywood is giving acting in video games a makeover
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
people
News
i100
Life and Style
Phones will be able to monitor your health, from blood pressure to heart rate, and even book a doctor’s appointment for you
techCould our smartphones soon be diagnosing diseases via Health Kit and Google Fit?
News
people
Extras
indybest
Sport
Usain Bolt confirms he will run in both the heats and the finals of the men's relay at the Commonwealth Games
commonwealth games
Life and Style
tech'World's first man-made leaves' could use photosynthesis to help astronauts breathe
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior Investment Accounting Change Manager

    £600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

    BA/PM,EMIR/Dodd-Frank,London,£450-650P/D

    £450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...

    Senior Analyst - ALM Data - Banking - Halifax

    £350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...

    Java developer - Banking - London - Up to £600/day

    £500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...

    Day In a Page

    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices
    Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

    Could smartphones soon be diagnosing diseases?

    Health Kit and Google Fit have been described as "the beginning of a health revolution"
    10 best over-ear headphones

    Aural pleasure: 10 best over-ear headphones

    Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
    Save the tiger: The animals bred for bones on China’s tiger farms

    The animals bred for bones on China’s tiger farms

    The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
    A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

    A former custard factory, a Midlands bog and a Leeds cemetery

    Introducing the top 50 hidden spots in Britain
    Ebola epidemic: Plagued by fear

    Ebola epidemic: Plagued by fear

    How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
    Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

    From 'Parks and Recreation' to 'Guardians of the Galaxy'

    He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
    How live cinema screenings can boost arts audiences

    How live cinema screenings can boost arts audiences

    Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
    Shipping container hotels: Pop-up hotels filling a niche

    Pop-up hotels filling a niche

    Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
    Native American headdresses are not fashion accessories

    Feather dust-up

    A Canadian festival has banned Native American headwear. Haven't we been here before?
    Boris Johnson's war on diesel

    Boris Johnson's war on diesel

    11m cars here run on diesel. It's seen as a greener alternative to unleaded petrol. So why is London's mayor on a crusade against the black pump?
    5 best waterproof cameras

    Splash and flash: 5 best waterproof cameras

    Don't let water stop you taking snaps with one of these machines that will take you from the sand to meters deep
    Louis van Gaal interview: Manchester United manager discusses tactics and rebuilding after the David Moyes era

    Louis van Gaal interview

    Manchester United manager discusses tactics and rebuilding after the David Moyes era
    Will Gore: The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series

    Will Gore: Outside Edge

    The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series