Critical Illness Cover (UK) - advice please!

[Frida]

We've had life insurance with critical illness cover since buying our first home in 2010. The policy has been expensive (£112 per month for a decreasing term of 28 years... that's £40k over the life of the mortgage!) and we were given exclusions for silly things (e.g. my husband has an exclusion for malignant melanoma because he had some benign moles removed 7 years ago...).

Now that we are aiming for a Mustachian lifestyle, my bristles are tingling and I'm keen to get rid of this cover. I found us a replacement life assurance policy without the critical illness cover for a much more reasonable £17 per month... this is a level term policy for 12 years just until our son turns 12, after which we feel we could cope financially if one of us died. My husband was in complete agreement and we were about to cancel our existing policy until we told our broker what we were planning... she responded with a very emotive email full of examples of clients and friends who have suffered terrible illnesses and been so glad of the money, and begged us not to cancel. Now, I wear the mustache in this relationship so my thoughts were "nice try, but I know you're only worried about your commission"; however, my husband was really unsettled by the email and is now very concerned about cancelling.

I would love to get advice from Mustachians on this! Am I being too gung-ho about cancelling?

To give you a bit of background, I've just become a SAHM for our 7 month old, so we're down to one salary but our monthly outgoings are fairly small and we're still managing to add to our savings and overpay the mortgage. We have enough saved to last at least a couple of years at our current level of spending should something bad happen, and if we were hit by a long-term illness we would probably move (we're in London... no point staying in such an expensive city if we're not working!). Outside of London we could buy a decent place with no mortgage. So I feel we're in pretty good shape to cope with whatever life throws at us, and I'd rather use the extra £95 a month to increase our 'stash.

Thanks in advance. I love this blog and find the readers' comments just as valuable as MMM's sage words!

[catalana]

It's quite a few years since I looked at this, and I seem to remember taking critical illness and redundancy cover but not life insurance - as I had no dependents and was living alone.  The important thing to me was being able to keep my modest roof over my head.  I remember limiting my cover to pay out the monthly mortgage amount, as I figured social security would cover my living expenses as I wouldn't have an expensive lifestyle if I was so ill I couldn't work.

I would say first stop should be getting all the facts.  What exactly would your existing CI pay out?  Lump sum or monthly amount, how much?  Is there a time delay before payment is received?  (which can reduce the monthly bill). 

Now the flip side - exactly what would you need to maintain your current lifestyle if your OH became ill?  Would you wish to work either full or part time, or would you want to stay home with him?  What social security and carer benefits are likely to be paid?

That should tell you whether you have a gap that is worth covering with insurance.  Personally, I don't carry much insurance, and find that brokers tend to over-insure.  Yes, I would be so glad of the money too, but as long as my important needs are covered (in my case keeping the roof over my head) then I am fine.

p.s.  Does his work and/or pension not provide life insurance?  You might be able to cut that bill further.

[grantmeaname]

What a manipulative bitch. I have less than zero respect for that tactic.

[Frida]

catalana - cheers for the advice. It's a lump sum payout that covers the outstanding mortgage, decreasing as we pay it off. Thanks for the tip about time delay before payout... I'll look into that. I'll also find out exactly what we'd be entitled to in the way of social security. If my husband were to become ill, I'd go back to work full time if needed. If I became ill, we do have family and friends who would help out with childcare until our boy starts school. Things would be tough, of course, but I really think we'd manage.

grantmeaname - that was my reaction too. Especially as the two detailed examples she gave were of a young mother who had breast cancer for 2 years before dying, and a little boy who had a terminal illness and his parents were able to use the payout "to do all the things little James wanted to do before he died". Can you tell the email was sent to me rather than my husband? She was so obviously trying to frighten me, knowing those are the 2 biggest fears of every new mother.

[catalana]

It certainly was highly manipulative, and her second example is sold on the idea of the lottery win effect.  Make illness less uncomfortable by spending!!!  Bleurgh.  The best insurance is for both partners being able to support the household on their own if needed.

The two factors of having a large emergency stash and your willingness to return to work should enable you to ride out the financial effect of serious illness.

[hickstead]

I know this is an old topic, just wanted to post in case anyone comes across it via search as I did.

You may decide you do need critical care insurance, but the kind that's currently tied to your mortgage sounds like a bad deal (decreasing returns - I hope your premiums decrease as well??). You may want to try to find CCI not tied to your mortgage, that covers the same term and amount.

I am self-employed with a young family and not yet FI, so I carry some CCI but it only costs me $50 CDN per month and if I don't make a claim by the time I'm 60 I get the money back that I paid into it. So, I'm losing cost of interest return, but it's better than nothing - at least until I have enough FI to not care any more.