Live Insurance and Mortgage

miket1964

I want to set up a life insurance policy, that will pay out a lump sum to my wife of around £170,000. This would be used to pay off our mortgage and give her a lump sum also, in the event of my death.
Also set up the same for her, so we would have a policy each.
I would say hers would be lower as I am the main wage earner.
Pointers please on what to go for.

Cautious_Investor_3

Hi

Some quick suggestions, not advice you understand!

1. Separate your needs; take out one policy to protect your mortgage and a 2nd policy to provide income for your wife. This way you can ensure that the type of policy, sum assured and term match the need

2. If you have a capital repayment mortgage then a DTA (Decreasing Term Assurance) may be right for you. With a DTA the sum assured starts at a level equal to your mortgage and falls broadly in line with your mortgage balance. You should set the DTA up with a term equal to your mortgage to ensure that it is always covered. You might like to set up the DTA on a joint life basis as you have only one debt and therefore it only needs to pay out once.

3. If you have an interest only mortgage (as many people do now) a DTA will not work for you as the sum assured will decrease but your mortgage balance will not. You therefore need to consider a Level Term Assurance (LTA) over a term that extends to when you think you will have the mortgage repaid by.

4. Having covered your mortgage have a think about how much cover you want for you and your wife. Let's say for example she would need £1,000 per month on your death (assuming the mortgage is repaid) this is clearly £12,000 per annum. You then need to think about what lump sum you need to provide this amount, let's assume you get a 5% rate of return, net of tax, you would need a lump sum of £240,000 to provide a £12,000. Generally a 2nd LTA policy is used (although you could use a Family Income Benefit (FIB)) policy. When it comes to the term of the policy this needs to take you to a time when the need will have gone, perhaps when children are less financially dependent upon you or when you have retired and have pension income.

5. I'd talk to a local IFA (find one at www.unbiased.co.uk) who will be very happy to discuss your protection needs with you. They will also help you to set up the policies in the most appropriate way, perhaps using trusts to help avoid IHT (Inheritance Tax) and ensure a speedy payout on death.

I think that's all for the moment, remember though to consider looking at critical illness cover, more expensive but more likely to happen.

I hope this helps.

The Cautious Investor

sophievenusdoom

Cautious_Investor wrote: »

Hi

Some quick suggestions, not advice you understand!

1. Separate your needs; take out one policy to protect your mortgage and a 2nd policy to provide income for your wife. This way you can ensure that the type of policy, sum assured and term match the need

2. If you have a capital repayment mortgage then a DTA (Decreasing Term Assurance) may be right for you. With a DTA the sum assured starts at a level equal to your mortgage and falls broadly in line with your mortgage balance. You should set the DTA up with a term equal to your mortgage to ensure that it is always covered. You might like to set up the DTA on a joint life basis as you have only one debt and therefore it only needs to pay out once.

3. If you have an interest only mortgage (as many people do now) a DTA will not work for you as the sum assured will decrease but your mortgage balance will not. You therefore need to consider a Level Term Assurance (LTA) over a term that extends to when you think you will have the mortgage repaid by.

4. Having covered your mortgage have a think about how much cover you want for you and your wife. Let's say for example she would need £1,000 per month on your death (assuming the mortgage is repaid) this is clearly £12,000 per annum. You then need to think about what lump sum you need to provide this amount, let's assume you get a 5% rate of return, net of tax, you would need a lump sum of £240,000 to provide a £12,000. Generally a 2nd LTA policy is used (although you could use a Family Income Benefit (FIB)) policy. When it comes to the term of the policy this needs to take you to a time when the need will have gone, perhaps when children are less financially dependent upon you or when you have retired and have pension income.

5. I'd talk to a local IFA (find one at www.unbiased.co.uk) who will be very happy to discuss your protection needs with you. They will also help you to set up the policies in the most appropriate way, perhaps using trusts to help avoid IHT (Inheritance Tax) and ensure a speedy payout on death.

I think that's all for the moment, remember though to consider looking at critical illness cover, more expensive but more likely to happen.

I hope this helps.

The Cautious Investor

Fantastical advice, sir :rotfl: