Life insurance - level term or decreasing cover?

[jennymac]

Just about to change my life insurance policy and not sure whether to go for level term or decreasing cover. I want to ensure the kids and hubbie would have the best deal if anything happened to me so should I just go for level term even though it is more expensive?

Decreasing cover is only really suitable if you just want to pay off the mortgage and not leave any other lump sum (as long as you are on a repayment mortgage so the amount owed goes down year on year). It is cheaper than level term so OK to give basic cover which ensures your family don't need to sell the house to repay the mortgage.

However, if you want to make sure there is a good lump sum left you would need to go for level term though it is more expensive.

Really, it is difficult to say what is best for you without knowing your circumstances. Have you spoken to a broker?

You can also get whole of life policies that pay out whenever you die. I understand that the two you mention are linked to mortgage terms, whereas a whole of life will pay out irrespective of a mortgage or not.

Whole of life policies alot more expensive, though, scary. And once the mortgage is paid off not as much income is needed to cover living expenses.

Op, you need to think about what kind of expenses your family will need to cover. I would discuss it with a broker.

I have whole of life on the assumption that dh is older than me and I will get to spend the life insurance!

Good point scary!

term is not necessarily linked to a mortgage, but to a sum you define. whole of life is significantly more expensive.

More expensive, but with a guaranteed pay out, whereas with level term and decreasing cover it is only for a fixed amount of time, and nothing back if you don't pop your clogs.

yes bus signifcantly more expensive and an invesment vehicle as well as a protection vehicle...

as conversation above indicates, you should really check with a good ifa. decisions re life versus whole of life etc should only be made in review of ALL your finances.

Precisely, which is why I've had it for years, and it would also be added to any death in service benefit as well. I don't think level term etc was around when we took this out.

well there's also no coinicidence that the whole of life market is dying. but regardless of that, op should see an ifa before making decisions like this.

Also, dh in HM Forces and a glider pilot. Whole of life allows for this, level term/decreasing term doesn't always.

so then your advice to op is probably completely irrelevant.

Why is it irrelevant - we could also get level term for the term of the mortgage if we wished to increase the cover.

well its irrelevant because the level of cover for all sorts of risks that you one gets in the armed forces will be completely different from the OP. hence my original advice to OP to see and IFA and not from posters on mumsnet. In any case she's clearly fallen asleep with boredom....

You don't know that...and there could also be health issues as well. That it's another avenue she could explore was rather my point.

Decreasing Term Assurance is really only appropriate when used in conjunction with a repayment mortgage. The payout decreases over the years as the amoun of your mortgage loan decreases. You take out the policy for the same term of the mortgage and starting with a sum assured the same as the loan amount.

Level Term Assurance can be for any amount and for any term and for any reason and is commonly used for family protection. The most common method of working out how long the policy runs for is either long enough of children to have finished further education or your expected retirement age. The sum assured is your choice but if it is for family protection a good rule of thumb would be between 5 and 10 times your salary/income. The amount of the payout doesn't change from day one to the end of the term, though if you survive to the end of the term, you get nothing back.

If you are concerned about the cost, a variation on term assurance is 'family income benefit'. This works in a similar way in that it pays out if you die, however, instead of paying out a lump sum, it pays out an income for the rest of the term of the policy. Again, you set the sum assured (income level) which is paid out tax free. The amount of the total potential payout reduces as the remaining term of the policy reduces and consequently is cheaper than level term assurance.

Whole of life insurance can be more expensive but not always, however, the premiums tend not to be gauranteed, unlike term assurance, and are reviewed after 10 years and then every 5, so can increase to a level that is no longer affordable. The plus side being that there is no expiry date as long as you keep paying the premiums.

Any type of life cover will be subject to underwriting by the policy provider which will take in to account health and lifestyle.

If the policy is just on your life, make sure it is written in trust or on 'life of another' basis where your hubbie is the policy owner. That way, the payout would be quicker and would not become part of your estate.

As has been commented above, you should really get advice from an IFA (not the bank).