Level Term Life Insurance Guide Discussion

Former_MSE_Wendy · 1 October 2010 at 12:20PM

This thread is to discuss the Level Term Life Insurance guide.

Click reply to discuss.

stevepett · 6 October 2010 at 3:54PM

And it isn't always cheapest either!

Life insurance is NOT a simple commodity which it makes sense to buy "off the shelf" - it is complicated with many different options which won't be explained by a discount broker and may not even be available from the bankaneers. Trusts are essential (and advice is needed on those) or the wrong people could benefit (including the taxman!), waiver of premium in the event of illness and terminal or critical illness benefit should be considered - intelligently, which means a discussion with an IFA who represents YOU, not the insurers.

It is a crying shame that the Vogons at the Financial Services Authority are so determined to drive 99% of the population into the hands of the bankaneers with their appalling track record of complaints.

Get proper advice from an IFA rather than put your family at risk - check out Unbiased.co.uk and FindaPro.co.uk (which has a useful postcode search).

I am not an IFA but was for many years until the FSA took all the client contact out of the job and made it into a civil service job where the customer comes way behind the paperwork and you aren't even allowed to answer a simple yes / no question without at least an hours work.

For those that don't know, the Vogons destroyed the Earth in Hitch Hikers Guide to the Galaxy, and had no sympathy with its' terrified inhabitants because the Planning Notice had been posted on Alpha Centauri 10 years ago!

dunstonh · 6 October 2010 at 4:54PM

We're not big fans of critical illness policies.

Yet MSE is quite happy to push PPI which is the poorer form of income protection rather than PHI. If you are going to run an "opinion" of a type of insurance then surely you should do it across the board.

Payouts on CI exceed those on life assurance. That is why CI is more expensive. So, effectively you are saying that you are not a fan of something that is more likely to be paid out on.

While some may be worried that 'cheaper isn't better', with level term assurance there's no investment element as the payout is fixed; and there's no argument over whether someone is dead so this is a truly simple policy in fact in most cases, provided you've disclosed adequately..

"It's simply a case of the cheaper the better!"

I disagree. Certainly price is a major factor. However, a reviewable premium plan is often cheaper than a guaranteed premium plan. Or a plan that has options like guaranteed insurability stripped out will often cost less. (an option I have used professionally three times in the last few years.

Frugel_Fred · 6 October 2010 at 5:15PM

DON'T BE FOOLED - life insurance is not that complicated at all!

With just a bit of concentration, most people can sort out there own life insurance needs fairly easily. You just need to be able to answer a few important questions about your own financial situation to work out how much cover you should have.

To work out how much cover you need, always treat mortgage debts separately, (they need a life assurance plan that is specific to that issue), then focus on areas like your outstanding debts (over and above your mortgage), that would need to be paid off in the event of your own or your partners death. Then think about how much income your family would need to maintain a decent standard of living.

Once you know the answer to these important questions, look for a discount broker website that will help you to calculate how much cover you need based on the numbers you've come up with and save yourself loads of money on the monthly premium by not involving a financial adviser that will need paying for his services via a commission payment.

Level term assurance is good for providing a large tax free lump sum. The same amount is payable right the way through to the end of the term.

However, Family Income Benefit (these plans pay a regular tax free income from the date of death, up until the day the plan was due to end) is likley to be a bit cheaper……although you should remember that if you do go for a Family Income Benefit plan, as each month goes by, the total amount potentially payable on death becomes less - because your getting a bit closer to the end date every month!

dunstonh · 6 October 2010 at 5:29PM

Life insurance makes sense, it's like savings.

Not unless you are planning taking a trip back to the 80s.

But what if an accident happens. You need the health insurance more.

Permanent health insurance is important but generally you would consider life assurance in the pecking order before income protection.

superdry · 6 October 2010 at 8:37PM

With life insurance (fixed), if my health deteriotes or, as an example, i have a heart attack in 5 years time do I need to change the policy, or does the amount I pay monthly stand?

dunstonh · 6 October 2010 at 9:47PM

superdry wrote: »

With life insurance (fixed), if my health deteriotes or, as an example, i have a heart attack in 5 years time do I need to change the policy, or does the amount I pay monthly stand?

Life assurance is set up with a snapshot of information about your past and information you know that may be happening in the near future. After that, there is no need to update your details again as it will have no impact unless you apply for increments under a guaranteed insurability option on the plan.

AceT · 7 October 2010 at 8:14AM

Just looking into this since the spawn of this thread and wondered if it is still possible to get a level term assurance plan with a cash in value so if you decide at some point to cancel then you receive a portion of cash back.

Cautious_Investor_3 · 7 October 2010 at 8:55AM

Hi

Quote from the original guide:

"one option is to get the level term cover and an income protection policy - which does just that - protects your income from a range of eventualities."

MSE should realise that critical illness cover and income replacement do completely different things.

There are times when an income replacement policy will pay out but a critical illness policy wont (e.g. long term absense through stress), equally there are times when a critical illness policy will pay out but an income replacement policy will not (e.g. someone off work with say a heart attack, but who returns to work before the deferred period on his income replacement policy runs out).

I have seen critical illness cover be of great benefit to people. In my 13 or so years advising clients (which I no longer do), I only ever saw two death claims (suicides unfortunately and both were honoured by the insurance company) but saw a critical illness claim generally once a year. Furthermore non of the clients who claimed on the critical illness policy died, they all recovered.

I'm afraid the content of the guide when it comes to critical illness cover is lazy and poorly researched.

Rant over....now breath CI!

The Cautious Investor

Cautious_Investor_3 · 7 October 2010 at 8:56AM

AceT wrote: »

Just looking into this since the spawn of this thread and wondered if it is still possible to get a level term assurance plan with a cash in value so if you decide at some point to cancel then you receive a portion of cash back.

Yes, it's called a whole of life or an endowment.

But they are generally a bad idea, why tie up your savings with your insurance?

dunstonh · 7 October 2010 at 10:05AM

AceT wrote: »

Just looking into this since the spawn of this thread and wondered if it is still possible to get a level term assurance plan with a cash in value so if you decide at some point to cancel then you receive a portion of cash back.

It wouldnt be a level term assurance if it had an investment element. It would be an endowment.

There is only one mainstream provider offering an endowment at this time (and its not like the endowments of old and not meant as a life assurance but as a tax wrapper for higher rate taxpayers).

If you wanted an endowment as you describe, then the monthly cost would be around 10-15 times higher than the monthly cost of the level term assurance. You would be better off having a decreasing term assurance and a Stocks and shares ISA as that would be lower cost and more tax efficient than an endowment.

Level Term Life Insurance Guide Discussion

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