When buying insurance, do you opt for the cheapest policy or do you work with an adviser and plan a strategy? (writes Howard Reuben, Principal, HCH Financial Services).
We all hear scare stories about insurance companies not paying out – but the reality is that policies rarely decline claims, and when they do it's mainly because of the policyholder's non-disclosure during the application process. By way of example, Legal & General's highest single life insurance payout in 2022 was £5 million – and overall, they paid out more than 96% of claims.
I want to outline the importance of life insurance with one particular example. One of my longest adviser-client relationships is with a property investor who happens to be a very successful businessman, plus a husband, dad, and grandfather who adores his family.
However, he's not in the best of health.
I recently arranged two mortgages for him. As with all my clients, I strongly recommended life insurance to cover the debt in order to protect his family from the consequences of repaying his mortgage debts. My client didn't need the spiel, however, as he is already fully in agreement and wanted me to arrange cover at the same time as the mortgage applications.
A few facts about his circumstances:
He suffers from a heart issue, which includes having a pacemaker.
He already has £1.6 million worth of life insurance in place to cover his current mortgages – and only needed to top up with an extra £240,000 of protection.
I carried out the standard life insurance research, including collecting letters from medical professionals, but none of the usual insurance companies would accept his application. I then went to the specialist insurance market and eventually found a provider who could help.
The extra cost? £994 per month.
As his mortgages are in joint names with his wife, the provider asked me to arrange cover for her too. She is 'standard' health, and her premium came in at £220 per month.
They already paid £1,600 per month before these extra property purchases, meaning their new premium is £2,800 per month.
Many people I speak with tell me this monthly cost is too expensive. However, my clients have said it's a 'no brainer'.
Insurance is all about risk. Throughout the term, the insurer carries the risk that if a policyholder dies, they will pay out a huge sum of money.
But there is no risk to the policyholder. If they survive, they have paid for insurance that never had to pay out. The 'no brainer' upside is that every month the premium is paid, the policyholder sleeps well at night knowing their debts will be fully paid off and their family will not be left with any financial distress (no red letters, debt collectors, having to deal with estate agents to sell quickly and cheaply, or even repossessions).
The downside of not having the right policy and not having the debts paid massively outweighs the cost of the premium.
Of course, the premium has to be affordable – but for these clients, £2,800 is comfortably within budget.
At HCH Financial Services, whether we arrange a £20 monthly policy or considerably more, the right cover, for the right price, will be properly discussed. We'll plan strategy and we'll get everything set up in trust to ensure you and your family don't need to worry about money matters in the event of premature death during your mortgage term.
We can even arrange multi-benefit policies, which include staggered terms and cover specific amounts to protect your different mortgages.
My top tips: be advised, don't buy cheap, and avoid inappropriate policies.
If you have any debt – holiday let mortgage, residential mortgage, commercial finance, secured loans, second charges, credit cards, hire purchase, store cards, or more – let's discuss your options.
Remember, the premium is never as high as the problem.
Contact Howard Reuben by telephone: 0333 1234 536 or email: howard@hchfs.com.
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