MDLA/Life Assurance?

yummum_3

Hi, I am looking for some help. Me and my OH have a mortgage for £80,000 which we took out last Aug. At the time I was "advised" on a MDLA for which I pay £32 a month. We have a daughter who is 14 months old and therefore we want to get some life assurance policies for both of us so in the event of anything bad happening we are well taken care of.

Should I:
a) take out life assurance policies that provide enough cover to pay off my mortgage then cancel my MDLA.
b) take out life assurance policies without including the mortgage ammount and still have seperate MDLA cover?

I know that Martain says as a rule of thumb my cover should be about 10x my annual income and would like to have the policies run for 20 years.

Any thoughts would be appreciated

dunstonh

a) take out life assurance policies that provide enough cover to pay off my mortgage then cancel my MDLA.
b) take out life assurance policies without including the mortgage ammount and still have seperate MDLA cover?

Maybe, maybe not. It comes down to pricing and needs. Both options have merits but without a cost and needs analysis we cant tell which is best.

I know that Martain says as a rule of thumb my cover should be about 10x my annual income and would like to have the policies run for 20 years.

I havent heard that method for donkeys years. No decent adviser would be using that method nowadays as you could easily end up paying for more then you need. Its an extremely crude and simple calculation but it would almost certainly over insure you. Not exactly a money saving tip.

Also, you and your OH are likely to have different levels of sum assured required and its quite possible that a packaged solution would be needed which could incorporate pension term assurance, making the cost of life cover even cheaper.

If you arent married, then trusts would also be needed, and with 10x sum assured, if you choose to go with that, then almost certainly will need a trust document for some of the life assurance.

yummum_3

Thanks for your response.

Am I right in saying that the purpose of the life assurance payout is to provide an income for the surviving spouse or child and that this ammount, for arguments sake £250,000, is to be invested and that they would live off the interest?

dunstonh

Am I right in saying that the purpose of the life assurance payout is to provide an income for the surviving spouse or child and that this ammount, for arguments sake £250,000, is to be invested and that they would live off the interest?

That is one of the main reasons and methods.

However you have to be careful. That 10x calculation is in addion to debts. So, you have a £200k property and £250 life assurance ontop of the mortgage life cover. Very crudely, that is £450k of assets on death. If you are unmarried, than Gordon Brown will pinch £66,000 of that in IHT. If he doesnt get it first time round because you are married, he gets it second time round when on 2nd death meaning the children get less.

Using trusts and/or pension term assurance can easily avoid the IHT liability. Pension term assurance is also cheaper than level term and decreasing term. Although Family income benefit could give pension term assurance a close run in premiums.

Most internet quote portals only quote decreasing term assurance and level term assurance and give little or no trust information. Whilst they may be a little cheaper than an advice based IFA (direct sites are execution/direct offer IFAs effectively), there is little money saving when you get your level term assurance 10% less when an advice IFA may have used a pension term assurance which can get upto 40% tax relief (even as high as 72% effective relief if you have working/childrens tax credits).

rossbenn

The 10% rule is baloney. Anyone who recommends this dosnt know what protection assurance is about. Sorry Martin, but this is what happens when lay people try to make things simple. Without preaching on the subject, this is the very reason bank managers, accountants and lawyers are no longer allowed to give financial advice, unless they have passed the FSA exams.

Needless to say few have. Be sensible talk to an IFA who will research and recommend a protection porfollio to suit your needs.
Remember if they only save you £10 p.m. over twenty five years that is a saving of £3000.