Life Insurance

[LaDiDaDi]

How do you work out how much life insurance you need, apart from enough to cover the mortgage. Dp and I really need to get this sorted along with drawing up wills but I'm not sure how much we need.

well it's pretty much dependent on your income and how much would be left if one or both of you die but assuming you are say 30 and have young children then i would maybe be looking at a 25 year term assurance of between 300k and 500k at a cost of around 40.00 to 75.00 a month but some people would think that too much and others not enough it's really related to your current and projected financial situation.

for quotes here is an online comparison website moneysupermarket.com

Thanks zippi.

My income is around 48K/annum, dp's is around 20K/annum including the perk of his company car and fuel etc. Our mortgage is £160k. I had been thinking of insuring myself for around £250k and dp for £160k as I know that, should the worst happen, I could afford living costs excluding mortgage on my wage alone.

Your dp's need to have you insured is greater than yours to have him insured due to your respective salary's. As a rough guide estimate how many years it will be before your youngest is 18 (or 21 if you want them to go to university) then times that by how much you think it will cost to maintain the children each year. As you say the mortgage will be paid for but will the surviving partner need support to look after the children so you or they can carry on working so contributing income into the household still. What about the cost of running a car etc you might have those benefits in your job now but you may change jobs in five years time so those company benefits may not be there. It is important not to factor these benefits in as they are not guaranteed to be there in the future.
Have a look at Family Income Benefit. Most insurance comapnies provide this, it is cover which will pay out on a regular basis like yearly, quarterly or half yearly. It is a cheaper form of life cover as say one partner dies 10 years into the policy it will pay out say £20,000 year for the remaining term. As oppposed to (level) life assurance which pays out the lump sum whether you die at the beginning of the term or at the end. Realistically if you die at the end of the policy term the need for cover will be less than at the beginning.
Have a look at having the policy in joint life as opposed to single life that will keep costs dowm a bit too, after all if one dies do you need the cover on the remaining partner still?
In all I would phone a couple of IFA's speak to them over the phone pick their brains and get them to send you various life assurance quotes. Then make your mind up. (Use www.unbiased.co.uk to find local ones)
Lastly think about the Inheritance Tax situation,(40% payable above £285,000) you may need to put the policies into trust so that your kids will not be left with a tax bill if you both die.
Sorry this is long winded but it is important that this is done right.

Thanks gingerrogers.

What you've said makes me think that we really need to get some professional advice, esp now that you mention the inheritance tax. We are not married and our house is worth approx 225k so as I knew that was below the IT threshold I hadn't really considered it before but I guess that we might be affected.

Plan of action:

1. Check my death in service entitlement from work.

1. Check if dp could receive my pension if I die or if we have to make specific provision in a will.

1. Check my critical illness cover. I already have some but can't remember the details.

1. Sort out life cover for both of us.

1. Wills.

1. Think about Inheritance Tax liability.

1. Think about getting married!

Okay, professional advice is a very good idea.

1. You are not married, so that is all the more important to get a will sorted so that you can sort out ownership of house, custody of kids in event of death etc etc.
2. If you take life assurance out it will affect Inheritance Tax as it will take you over the threshold, so that needs to be considered. (Looks like your death in service benefit will take you over the threshold anyway)
3. Find out if you have a final salary pension scheme or a money purchase scheme. Most schemes are of the latter which means DP will get a pension dependant on the value of the pension fund. If it is the former then DP will get a pension dependant of your salary and years of service etc. However as you are not married do double check that! VERY VERY IMPORTANT! You know how the law can be funny about people not married and pension schemes may be the same. (You can nominate on some pensions who you want the benficiary to be)
4. Critical Illnesss Cover. Excellent stuff but now is quite expensive. have a look at Personal Health Insurance which is Critical Illness Cover but paid monthly again it is cheaper just like family income benfit as explained earlier.
5. Cannot advise on the marraige thing! It all comes down to how much you want to spend so good luck. I will keep an eye out on this thread in case you have any more questions. Good luck

Right, I spoke to an IFA tomight on the phone. Although he was happy to find us the cheapest quotes etc he wanted dp and I to think more about what sort of figures we feel are appropriate for us.

I was thinking that once the mortgage is paid of, allowing 5k extra for early repayment charges etc, then we could do FIB for dp paying out 10k/year if he died over 25 years and if I died dp would get that plus a lump sum of 100k.

Do you think that sounds reasonable?

We have one dd at present and no other dependents.

Sorry to be so long coming back to you.
£10k a year is about £800 a month (tax free). If you are happy with that by all means go with it, personally I would go maybe a little higher as that would allow you some extra luxuries in life, maybe £15k a year. Perhaps another thing to look at is how much the cover comes to cost wise, have a figure in your mind of what you can afford then get some figures based on that, you might be surprised at how much cover you can get. Life cover generally is quite cheap.
Again the IFA should be able to send you or even e mail the quotes to you so you can get an idea for figures/costs.