I am personally involved in helping people find life insurance. Mostly for people with a medical condition or high risk occupation.
Regardless of the different circumstances of the individual, the things that people protect are always the same and the top two priorities are family & mortgage.
Mortgages are quite simple to protect. If the mortgage is ‘Interest Only’ (the debt stays the same) then the most suitable cover is likely to be ‘level’ term insurance which also stays the same.
If a mortgage is ‘repayment’ which means it goes down over time then the FSA favours ‘decreasing’ cover which also goes down. It is cheaper than ‘level’ cover and serves the purpose, although quite a few people tend to favour ‘level’ cover even though the mortgage is going down.
Why? Well, as the mortgage goes down, the amount of cover stays the same so a surplus of cover builds up which could provide extra benefit for the family.
Plus, the policy holder always knows how much cover they have.
The FSA aren’t so keen on this though and there’s a good reason.
A house was worth a lot less 25 years ago which means the mortgage would have been a lot less so the amount of cover would not seem like quite as much in today’s terms thanks to inflation.
The best way to provide protection against inflation is with ‘Index Linked’ cover that goes up and so provides a comparable amount of cover, over time, throughout the term.
Usually the cover goes up and so do the payments.
So it might make sense to have one policy for the mortgage and another one for the family.
But then there’s Family Income Benefit, Waiver of Premium, Critical Illness.
Or how about Own Occupation or Work Tasks Disability Cover which could be the difference between a claim being successful or rejected….
This is just the tip of the protection iceberg and hopefully highlights the importance of really doing your research or getting advice from a specialist.
Another good reason for getting advice is based on a true story.
I recently spoke to someone who had applied for life insurance through a well known supermarket chain.
They have a mortgage of £120,000 with 18 years remaining.
An application was submitted over the phone for £115,000 of cover for 17 years.
Now I can only speculate as to how this happened and people do sometimes make mistakes but when I spoke to the applicant they couldn’t think of any reason why the ‘adviser’ had got it so wrong and they certainly seemed to know their mortgage balance and term.
Could it be the ‘adviser’ was really more of an ‘order processor’ and didn’t double check or even ask the right questions?
What’s hard to understand is an application had already been submitted with the wrong cover but there is a regulated process and the applicant should have seen or at least discussed a quote before it went that far which, would have brought the mistake to their attention.
This could be an isolated incident and I’d like to hope it is but I wouldn’t be surprised if lurking around the corner there’s an advertising slogan or an automated sales call that asks, ‘have you been mis-sold life insurance?’ or ‘Are you entitled to a refund?’