Life Assurance - new parents to be.

Abyss

Hi

I'm hoping someone could help me understand what I am choosing here, and that I am opting for the right things.

I've gone to the Cavendish Online site as recommended on the info section of MSE.

DH and I are expecting our first baby in a few weeks. :j

I want both of us to not need to work should the other die.

All going to plan, we will have paid off our mortgage within the next two years; will need to upgrade once this baby is toddling, and especially if we have another child or two, but I don't expect to majorly increase our mortgage/get a new mortgage as we'd be moving to a cheaper area and/or renting the current home to cover any bills from a new home.
Point being, I don't think we need to be too concerned about mortgage repayments re the life assurance.

So, am I right to go for the Family Income Benefit as opposed to Level Term or Decreasing Term?

I want the Death and Critical Illness Cover, don't I?

Term in cover of years: it suggests 20 - I guess that sounds about right, to see this first child financially secure and if we have another one or two, hopefully in the next couple of years, we'll be covered until the youngest has at least finished school? (Counting chickens I know, as we don't even know if we'll get another child or two, or when!)

Amount of cover: do I just choose this figure? And is it the amount either of us would receive each year? I think we'd manage and be comfortable on, say, £40000 - does that sound reasonable? Excessive? Not enough?!

What is guaranteed vs reviewable?

Sorry, as you can tell, I am quite clueless here!

Thanks so much in advance.

dwsjarcmcd

Personally I'd opt for level term rather that Family Income Benefit. The cover under FIB reduces annually (100,000 cover/20 year term equals £5,000 p.a) whereas with Level Term, the £100,000 stays constant. Also with your plans, you will need to review FIB when child no 2/3 arrives. Does depend on the relative costs of each.

You mention cover of £40k, is this p.a or total? With FIB, this equates to £800,000 if it's p.a. if it's level term then it's not enough. Again the level of cover depends on your needs, so if your saying you will need to replace a salary, then that is a good measure. Not sure why you would not want to work again, when the youngest was say 15?

The higher the level of cover, the more robust the underwriting (medicals etc) so be aware of that.

Adding CIC is a good idea but at £800,000, I would have thought it would have been very expensive. You can now get policies that offer partial CIC i.e £100,000 life cover but only £50,000 CIC. This helps with affordability as in my experience, people often want CIC but get put of when they see the price of it!

Guarenteed premiums mean they will stay at the same price for the duration, reviewable means the insurer can increase them whenever they want by however much they want, although some insurers may keep the premiums at the same level for an initial period - say 5 years.

If it was me, I would go for something like £200,000 guarenteed Level term with CIC. That would give you 5 years based on £40k. If you can afford more, and it's your top priority then go for it.

Abyss

Many thanks for the reply, dwsjarcmcd.

Will consider the Level Term then. Basically, I think I'd just like to feel financially secure should DH die, and also to know HE was financially secure should I die, so either one of us can raise our child/ren without desperately relying on working at the same time. I am currently planning on being a SAHM until the youngest is at school, so no, not planning on not working when they are in their teens, but didn't know how else to secure several years' worth of financial security for the early years. Pregnant-head - I guess I just request cover for a shorter term than 20 years? Though I do think it's good to have a back up income should one of us be a single parent, if we want to see our teens through university or whatever. Especially if it's me and I've been off the career ladder for a few years.

I said £40k as that's about what DH and I each earn right now (annual salary), and we'll be managing on one salary soon, and I think £40k a year means we have a roof over our heads, won't starve, and can live ok.

How do I find out about which policies offer partial CIC?

Anything else I should consider? Thanks so much.

dwsjarcmcd

It's basically getting the right cover, for the right amount over the right term, oh and you can afford it. Cavendish are very good as they discount the price in return for a pretty small charge.

Regarding partial CIC both Legal & General and Aviva do them, along with others. You can check them out direct or check a couple of comparison sites. With both you will need to get a quote (it may be worth putting in a dummy e-mail address first)

http://www.comparethemarket.com/life-insurance/

https://www.confusedlife.com/

David

Abyss

Thanks again, David. (Easier than dwsjarcmcd!)

How do I ascertain what the right cover is for the right term? And are we meant to amend the plan if we increase our family as hoped?

Will discuss with DH and hopefully get something sorted before this baby arrives!

dwsjarcmcd

You can only ever really plan these things to within a certain degree of accuracy, never exactly. If it was me (and it has been in the past), I would be looking for

- Life cover to take the youngest child to at least secondary or higher education - 20 or 25 years
- Level term with Critical Illness (or partial CIC) dependent on affordability
- Enough cover to replace about 5 years (at least) so £200,000. If you can afford it and it is your priority then more.
- This to be seperate to any cover for a mortgage.

There are a few other thoughts to factor in
- Do either of you have life cover (Death in Service) included within your pensions at work? If you are employed, there is a very high probability you do, up to around 4 x salary is normal. This should be factored in to the equation if you do. Remember that if either or both of you stop work then this cover stops.
- Inflation eats into the protection over time, so £200k may be sufficient now but may not be in 10 years.
- You can add/review life cover whenever you want but remember life cover gets more expensive as you get older and as, people tend to get more illnesses, this has an impact on the cost and/or the amount of cover you can buy.

Obviously, Cavendish (and the links posted earlier) are all non-advised with discounted premiums, if you are worried about the term/cover etc, it may be worth speaking to an IFA who will prvide you with advice.

David

Abyss

Thanks, David, you've been brilliant!
Didn't even think of cover from work/death in service - I have a feeling mine do, DH works for a big company, so high chance there too - will check with him. Definitely good to bear that in mind. Thank you.