Life insurance - how much?

[ChemMouse]

We are in the fortunate position of having paid off our mortgage (inheritance). We had mortgage linked life insurance (paid off mortgage if anything happened) which are now useless.

We want to take out "normal" life insurance, but for how much and how long?

Details: DH and I are both 41. Two DDs, 5 and 18 months.

Thanks in advance

Your mortgage linked insurance isn't "useless", if you are still paying the premiums it will still pay out on the first death. It is a level or decreasing policy?

If you are working do you have 'death in service' benefits? That at least would be a starting point. We both have those. In addition we have a joint life policy that will pay out £500,000 on the death of either of us and a mortgage protection policy. Our kids are young adults now (one completely financially independent) and the other at university.

I think your situation is a bit more complicated given the age gap. Eg if both of you died, would you want the 18yo to be responsible for the 5yo or would you have an alternative guardian in place? If the former, you’d probably need quite a large payout given an 18yo’s earning capacity would be low, perhaps at university etc.

If just one of you died, you might not need a yet much coverage given mortgage paid off.

18 months!

We took out life insurance and critical illness policies, to cover us till both of our children were 18. Unfortunately, I needed to claim on my critical illness policy, the policy paid out very quickly.

@ChemMouse

I'm a life insurance adviser. Don't rely on death in service. Reason being if you leave your job/are made redundant etc you'll lose the benefit.

You need to calculate how much it would cost the survivor of you to cover the children's expenses monthly including childcare. I would get a policy called Family Income Benefit. Quote for an amount you need monthly for 22 years (as if children go to Uni they will normally be finished by then and working - hopefully). Make sure you add indexation to ensure inflation doesnt erode the benefit. Once arranged the policy needs to go into a survivor discretionary trust to ensure the policy doesn't form part of the estate for iht if you both died simultaneously, and is paid immediately instead of waiting for probate.

Please make sure you have a will in place stating who will be guardian for the children too.

Just for yours, and others reference a breakdown of products:

Life insurance: lump sum payment upon death. Can be used for mortgage or family cover.

Critical illness: lump sum payment paid upon diagnosis of a specific illness as per provider policy documents. Be picky who you use because one provider will cover 3 illnesses and another will cover 150.

Income Protection: Monthly payment up to 60% of gross monthly earnings if you can't work due to accident or illness.

Family Income Benefit: life (can include critical if wanted) monthly payment upon death (or diagnosis of critical illness) designed to help with the costs of financial dependents for a set period.

cptartapp Oops yes! Bit of a reading failure there sorry OP.

Thanks for all the advice everyone! Off to do some more research