Life insurance- where to start?

[frumperina]

DH and I have one child, no mortgage at the moment.
What length policy should we go for and how do I work out what amount to insure us for?
Trying to be a responsible adult! :o

The question to ask is how big a financial impact do you want your death have on your family? Large, medium or small. If you don't have any big financial commitments and both earn similar amounts of money you may decide that life insurance should cover a decent funeral and not much else. If one of you earns far more than the other, it would make sense to insure the high-earner's life for more than the low-earner's. If you'd like your family to be set for life and never have to want for anything again, it's a much bigger sum. Finally, it comes down to what you can afford.

Assuming one of you died, what changes would you have to make to afford to live adequately? Would you go from 2 salaries to one, would childcare costs go up, what other expenses would go up or down?

Ideally, each of you would be insured to cover what impact your/his death would have, allowing for the changes in your lives both now and up till your child is say 18 and able to support him/herself.

Then you look at how much the premiums would be, and consider what you can afford!

There are a number of considerations:

1. What do you need to protect- this may include: Survivor?s lifestyle, mortgage costs, funeral costs, other debts/liabilities, school fees, university fees, child care.
2. How much do you need and how long for? Try writing out what the costs would be to the survivor as shown above and try to match it against the income that would continue. As above try matching the costs against a timeline ? mortgage term/ children no longer dependant.
3. What type of Insurance do you need - This will be guided by your answers to 1. The options are numerous but include: Level term assurance- Pays a set lump sum in the event of a claim throughout the term of the policy. Decreasing term assurance - Benefit lump sum reduces over time to reflect the fact you are repaying your mortgage. Critical illness- Can be on level or decreasing term ? pays out in the event of severe medical conditions (these will vary depending on the plan). Income Protection ? Pays out a replacement income (usually 75%) in the event of an illness that prevents you from work.
4. Cost ? Obvious one but your budget will also affect the amount of life cover you can afford so try to prioritise what you would want to cover the most.

Most importantly read the key features of your plan so you know exactly what you are and are not covered for.

and a useful tip - two separate policies are only fractionally more than a joint one for the same amount - so if both of us died we have 2 x £200k for £55 a month as against 1 x 200k for £49 a month
and each policy can be started or stopped or altered independently if needed