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Level Term Life Insurance Guide Discussion
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Old 01-10-2010, 12:20 PM   #1
MSE Wendy
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This thread is to discuss the Level Term Life Insurance guide.

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Last edited by MSE Wendy; 05-10-2010 at 8:26 PM.
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# 2
stevepett
Old 06-10-2010, 3:54 PM
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Default Level term isn't always best

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!
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# 3
dunstonh
Old 06-10-2010, 4:54 PM
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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.

Quote:
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.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 4
Frugel Fred
Old 06-10-2010, 5:15 PM
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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!
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# 5
dunstonh
Old 06-10-2010, 5:29 PM
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Life insurance makes sense, it's like savings.
Not unless you are planning taking a trip back to the 80s.

Quote:
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.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 6
superdry
Old 06-10-2010, 8:37 PM
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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?
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# 7
dunstonh
Old 06-10-2010, 9:47 PM
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Originally Posted by superdry View Post
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.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 8
AceT
Old 07-10-2010, 8:14 AM
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Question

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.
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# 9
Cautious Investor
Old 07-10-2010, 8:55 AM
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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
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# 10
Cautious Investor
Old 07-10-2010, 8:56 AM
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Quote:
Originally Posted by AceT View Post
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?
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# 11
dunstonh
Old 07-10-2010, 10:05 AM
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Quote:
Originally Posted by AceT View Post
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.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 12
Steady_Eddie
Old 07-10-2010, 11:58 AM
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I Have just read the MSE article and everyones responses. I was hoping someone could help me.

I'm a bit confused with mortgage life assurance and level cover. If I had a repayment mortgage of 100,000 for instance and I wanted cover to clear the mortgage and I also wanted extra for living expenses what is the best way to do it?

Would I take out a mortgage life assurance policy for the mortgage and a level life policy for the extra or would I just take out a level term policy to cover the lot? Which would work the best and be most affordable? To me, it would make more sense to have both so you would know exactly what you were covered for. This may however not be cost effective.

Thoughts appreciated..
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# 13
dunstonh
Old 07-10-2010, 1:03 PM
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Quote:
I'm a bit confused with mortgage life assurance and level cover. If I had a repayment mortgage of 100,000 for instance and I wanted cover to clear the mortgage and I also wanted extra for living expenses what is the best way to do it?
A decreasing term assurance for the mortgage (assuming its capital & repayment mortgage) and a level term assurance and/or family income benefit policy for the family protection. i.e. two different needs means two different products. Many modern life policies allow you to have multiple segments under the same policy. So, you can set up multiple needs and types of cover under the same plan.

Quote:
To me, it would make more sense to have both so you would know exactly what you were covered for. This may however not be cost effective.
it is cost effective as the chances of your family protection needs having the same term as your mortgage protection needs is unlikely. Also, what happens if your mortgage changes in future needs (you borrow more or change the term). You would then have to potentially re-write the lot again or be stuck with a policy that doesnt fit your needs.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 14
daveyates
Old 07-10-2010, 1:04 PM
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First of all, thanks Martin for naming Contact Insurance in your 'What is Level Term assurance' article. Certainly the article raises all the salient points. Life cover is important and can be used and viewed in many ways.

On the unadvised / advised point, the main area of concern we have, is the number of people who buy life insurance to provide for their dependents in the event of their death, yet remain unaware of attaching a trust in such situations. I am all for reducing the burden of cost, as long as the full benefits of the policy are there when they are needed - it is all a bit of a false economy if low premiums without advice result in inadequate cover.

David Yates
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# 15
Steady_Eddie
Old 07-10-2010, 2:32 PM
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Quote:
Originally Posted by dunstonh View Post
A decreasing term assurance for the mortgage (assuming its capital & repayment mortgage) and a level term assurance and/or family income benefit policy for the family protection. i.e. two different needs means two different products. Many modern life policies allow you to have multiple segments under the same policy. So, you can set up multiple needs and types of cover under the same plan.



it is cost effective as the chances of your family protection needs having the same term as your mortgage protection needs is unlikely. Also, what happens if your mortgage changes in future needs (you borrow more or change the term). You would then have to potentially re-write the lot again or be stuck with a policy that doesnt fit your needs.

Thanks for that. I have recently been offered a level policy to cover my lifestyle and house? When I pointed out to the advisor that the payout would be variable depending on how much of my mortgage was left he looked at me blankley. I tried explaining to him that the cover he was offering would be fine if I died in 15 years time as most of my mortgage would have been paid if however I died tomorrow I'd still have a large mortgage and it would not leave enough to support my family. Makes sense to me, shame my advisor did not get it!
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# 16
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Old 08-10-2010, 7:59 AM
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IMHO decreasing term can have a place in family protection as well as mortgages. Its no real difference to FiB ( family income benefit) in that the total payout reduces as time goes by - ( reflects the reducing costs - ie you need more to see a 3 yr old to independence than you would a 17 yr old) in fact some people convert FiB polcies to a lump sum on death anyway .

Maybe not a text book solution - but a good adviser will investigate options - Means if budget is an issue you can still go for high initial cover when its really needed
Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.
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# 17
ISAmad
Old 29-10-2010, 7:51 AM
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Please could someone advise me?

I need to buy Life Assurance. I'm British. I live in the UK (for now). In two months I intend to emigrate to Japan.

There seems to be a big market in expat Life Assurance polices but why is that? When does a standard UK-bought policy suddenly stop covering a Briton overseas?

I've tried looking at T&Cs online but can only find the Key Facts as opposed to the whole document.

Any help would be so much appreciated! Thank you!
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# 18
mac.d
Old 30-10-2010, 7:12 PM
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Help! I've just been trying to read up on life insurance, I never realised it was so confusing...

If I just want money to cover funeral costs etc paid out when I die what should I be looking for. Is it a whole life insurance policy I require, or am I as well paying for a funeral plan with an undertaker rather than life insurance?
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# 19
dunstonh
Old 30-10-2010, 8:22 PM
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Quote:
If I just want money to cover funeral costs etc paid out when I die what should I be looking for. Is it a whole life insurance policy I require, or am I as well paying for a funeral plan with an undertaker rather than life insurance?
Whole of life assurance plan is typically the type of life assurance that would fit that objective. However, pre-pay funerals can also be a suitable option.

Internet has very little coverage of whole of life assurance plans. Avoid the over 50s plans as they are usually poor value for money.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 20
mac.d
Old 31-10-2010, 12:50 PM
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Ta much dunstonh, I'd wondered how I couldn't find much online myself about whole of life assurance plans, but at least I know that's what I should be looking at now!
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