So talk to me about life insurance (please!)

[MinnieBar]

Our eldest DC is 5 and it's been on my to-do list for far too long , but I've finally got some quotes.

I'm more than happy that they're competitive, but it's all the different options that are befuddling me.

I don't think we need critical illness as our main income would be unaffected (family business).

But, what value - just the remainder of the mortgage or a bit more?? For the length of the remaining mortgage or longer??

If you haven't fallen asleep already, can you tell me what options you have and why?

I would suggest you run all the scenarios, ask:

What would happen if I die? Who would look after the kids? How would we pay for this (if necessary)? What bills may need covering that my income/time contribution would not cover?

Then what would happen if DP dies? Same sort of questions. What would you struggle to pay? ... this is what the insurance is for.

This hopefully would give you some guide as to the ?cost?. You may have one off bills (mortgage) and some ongoing costs (nanny for childcare, school fees). This can then be covered by insurance:

Lump sum insurance for a set period (eg until mortgage finishes). 'Term life assurance'

Monthly income for a set period (XXXX pounds a month until kids are teens/finish school). Often called 'family income benefit', it's a decreasing term assurance paid monthly to save on cost and admin.

You can then pick a suitable combination.

If you insure yourselves separately it is more future proof (sorry no time for long explanation).

I always suggest that as insurance is a nice to have, don?t go for ?merry widow? levels of cover, but cover yourselves so that penury doesn?t beckon. I?m afraid only you can do the maths as to what that may mean in terms of sums assured.

HTH

You need to think about how one of you would manage if the other did die. What would the practicalities be? If you go for an amount to just pay off the mortgage, would the remaining partner be able to manage financially? You'd still need income to pay the bills and put food on the table etc. With small children, would you be able to work at all, would childcare needs make it impractical? Would whatever benefits you'd be entitled to be enough to get by on, until the children were at school and you could go back to work?

If not, then how many years might you need an extra source of income / savings in the bank to fall back on? If you think you'd need, say, 5 years of income at (current income minus mortgage payments) per year, then look at getting a policy which would give you that. Then decide if you can even begin to afford the premiums, nd make a compromise!

We have decreasing term policies on both of us to cover the mortgage, but we also both have pension and in-work-death benefits from work which would have been enough to keep the other from having to work while DS was still small.

Thanks both - it is really complicated isn't it? I'd have to ask my parents what would happen to my income if I died - I'd like to think they'd give it to DH/entrust it to the DCs (I'm positive they'd at least do the latter).

If DH died, then the mortgage would be paid off and I'd continue as I am (no need for extra childcare). If I died? it's really hitting me that we haven't really thought about that.

I am older than DH as well (although I think statistically we're likely to die roughly the same age, i.e. well after the mortgage ends).

If you haven't made a will, that would also be a good thing you both to do at the same time as taking out life insurance. Simplifies things considerably, establishes who will inherit what, provisions for guardianship of any children, what age the children would inherit, all kinds of things. Best to have something in writing rather than trust to luck or make assumptions.

Do you have any other type of income on death? I have the benefit of a 'death in service' payment as part of my contract and we also have a Family Bond that pays out a small lump sum if I die. I think you need to think about it very carefully if not. As others have said, if you think about how much your mortgage is as a proportion of your outgoings its probably not more than 50%. You'd therefore still have to fund the other 50% even if the mortgage was paid off.

One thing to bear in mind: if you are using work cover for life insurance, don't make this THE main stay of your planning. If you are seriously ill and your contract is terminated (more likely that death in service), then you will not be able to get replacement life insurance as you would be too high risk. You could then leave your family exposed should the worst happen... (sorry SO morbid)

Sorry I didn't mean that the death in service is effectively a life insurance policy, I meant that it will influence whether you want more cover than simply mortgage protection.

life assurance salemen like to sell you a sort of saving scheme that means you pay them (a lot of) extra money over 20 years or so, and if you don't die, you get (an unspecified amount of) money back at the end of the term.

These have been pretty well exposed over the last ten years or so.

Term Assurance is very cheap (because if you are young and fit you probably aren't going to die in the next 20 years). They are unpopular with salesmen because they pay far less of your money in commission. They are popular with me for exactly the ame reason

If you want to save, do it quite separately.

Death In Service benefits will be OK as long as you don't change jobs, get made redundant, or leave, or have a change of employment contract in the next 20 years. I did all of these.

I would advise you to take out critical illness cover. You don't have to be dying for it to pay out.

We had a critical illness policy which was for the value of our mortgage which decreased as it did. We are so glad that we had it as I was diagnosed with cancer a year and a half ago. We didn't realise until almost a year after diagnosis that we could claim on the policy as the cancer I had was more advanced than an in situ cancer (Basically it was an actual tumor rather than still at a cellular level) As it was I am now in remission and have a 95% survival rate as it was still stage 1 and one of the most treatable cancers. Our mortgage is now payed off and we have all that extra money each month.

If we didn't have the critical illness part of the policy we would have got nothing and as i'm now unable to get life insurance unless I pay a huge premium we still would get nothing if I die in 20/30 years.

Thanks, this is all very helpful. My parents have been away so I still haven't had a chance to ask exactly what will happen, but it's top of my to-do list, promise!