Level Term Life Insurance Guide Discussion

weighty1_2

Hi Stephanni,

I'd place income protection over all other cover. Your income underpins everything and even whether or not you can pay for your life insurance (ok, you could have waiver added, but you get my drift). I certainly wouldn't say forgo life cover, but I'd say it's better to arrange PHI and then arrange life cover with any remaining part of the budget than arrange life cover and forgo PHI.

stephenni1971

weighty1 wrote: »

Hi Stephanni,

I'd place income protection over all other cover. Your income underpins everything and even whether or not you can pay for your life insurance (ok, you could have waiver added, but you get my drift). I certainly wouldn't say forgo life cover, but I'd say it's better to arrange PHI and then arrange life cover with any remaining part of the budget than arrange life cover and forgo PHI.

Wow... That flies in the face of anything I was ever taught.

weighty1_2

Don't take this the wrong way Stephenni but who's to say you were taught any better than me?

Why insure yourself first and foremost for the situation which is least likely to ever occur? Historically, people have always looked at life insurance as their first protection need, however, this doesn't mean it the most prudent approach. Most people who have a car worth anything over a few grand have fully comprehensive insurance, yet few of those people will also have income protection. Why protect a car worth a few thousands pounds for every eventuality yet only protect yourself for the absolute worse case scenario?

The personally protection market is all back to front in my eyes and until advisers start protecting people from the financial devastation associated with long term ill health, and you only have to read a few of the threads to see how often ill health is associated with financial hardship, then the situation is unlikely to improve.

However, from a protection perspective I would still recommend taking life cover, simply not see as priority number 1

stephenni1971

Why insure yourself first and foremost for the situation which is least likely to ever occur?

Because its the one event there is no chance of a recovery from! Seriously if you are off work long term ill, there are state benefits which, although unlikely to provide a high standard of living from are still available. If you die other than bereavement payout there is NOTHING.

Historically, people have always looked at life insurance as their first protection need, however, this doesn't mean it the most prudent approach.

Historically, people have done this because it is good practice.

Most people who have a car worth anything over a few grand have fully comprehensive insurance, yet few of those people will also have income protection.

Thats a ridiculous comparison. Firstly there is a statutory obligation to insure a vehicle, and secondly if you have checked recently there is little difference between fully comp and TPFT only - in many cases FC is cheaper...

The personally protection market is all back to front in my eyes

In your eyes, maybe, but I think others may see it differently.

and you only have to read a few of the threads to see how often ill health is associated with financial hardship, then the situation is unlikely to improve.

This is where I think you are wrong. You dont insure simply based on the likelihood of an event happening, but prioritise based on the outcome of that event.

Life cover - unlikely - effect total and complete end of all income forever.

Unable to work - more likely - possibility of recovery and if not state benefits offer at least some level of income.

Sorry but when you tell a single parent that life cover may not necessarily be the first priority I personally think you are wrong.

weighty1_2

Stephenni,

I'm not going to pull your response to piece's comment by comment, as you have with mine, however, there are a number of prominent people within the industry who DO agree with me. I could give you names, however, it is not my place to name people in a thread when I hide behind anonymity. (Yes, I do know this sounds like a cop out)

Historically people have looked at life cover first and foremost for several reasons.

1) It is the most widely known about form of personal protection
2) It is the cheapest form of personal protection and who WANTS to pay more than the absolute bare minimum for their insurance? (not many people unfortunately hence the length of this thread and no corresponding PHI or CIC thread of similar length)
3) It is the easiest sell for the adviser and requires a less in depth conversation than either PHI or even cic necessitate - this has been ideal in recent years for all those internet based non-advised salespeople
4) People think the state will help them out – Well, based on an average salary of £25,948 and long term higher rate incapacity benefit being £94.25 per week that would result in a reduction in net income of approx 82% for even an average earner. How many people could cope to any degree with that reduction in income?
5) All of us are emotional beings who don't necessarily do things with a logical approach. It's easier to envisage dying (and the corresponding financial consequences of this) than suffering a long term incapacity.

The car insurance reference isn't ridiculous. It's an analogy and should be referenced as such, not as a cost analysis as to why people take fully comp cover against third party. People hold dear to them certain things and almost without exception we all take our health for granted until it starts to fail.

You are absolutely right in saying that people don't insure based only on the likelihood of an event happening but prioritize based on the outcome. There are many people out there who will spend more each month on lottery tickets than life cover, based on the outcome of that event. It doesn't mean it is right to do so!

Personally, you think I'm wrong to not necessarily recommend life cover as the number 1 priority to a single parent....personally I could say that I think you're wrong not to recommend IP first. At no point am I saying not to take life cover, of course it's important to have life cover, but when the uptake of PHI policies is around 7% across the industry for protection against the most likely occurence something is skewed. This doesn't show a market whereby people are taking life cover first then taking PHI, it shows that people are taking life cover and nothing else, or life and cic policies and forgoing PHI.

Phew!………….on reflection, maybe saying that I prioritize PHI over all other forms of insurance make it sound like I’m on some form of PHI crusade? Maybe it would have been better to say there should be equal weighting when arranging life cover and PHI, but with the majority of the budget contributing towards PHI?

geordie_ben

Possibly a daft question but how do I know how much cover I need?

My job pays out four times my salary for death and less for serious illness

My death payout is more than my mortgage... Do I still need assurance?

kingstreet

geordie_ben wrote: »

Possibly a daft question but how do I know how much cover I need?

My job pays out four times my salary for death and less for serious illness

My death payout is more than my mortgage... Do I still need assurance?

You got anyone financially dependent on you? If not, is it important the property be left to anyone you'd like the mortgage paid off for?

Normally, take protection for mortgage and income if needed. Protection for family should be from death in service cover.

No dependents and no-one to pass the property to = no life cover required.

You sure your employer provides serious illness cover? That would be unusual. Ensure your income is protected so you can continue to pay your mortgage and bills in the event of illness or disability.

geordie_ben

kingstreet wrote: »

You got anyone financially dependent on you? If not, is it important the property be left to anyone you'd like the mortgage paid off for?

Normally, take protection for mortgage and income if needed. Protection for family should be from death in service cover.

No dependents and no-one to pass the property to = no life cover required.

You sure your employer provides serious illness cover? That would be unusual. Ensure your income is protected so you can continue to pay your mortgage and bills in the event of illness or disability.

No-one financially dependent. My O/H wage would cover the mortgage and bills

Just checked and I get Life Assurance and Income protection included in my benefits from my job. LA = 4 times my salary and IP = 50% of my salary if I'm absent from work for 26 weeks continuously or I have 26 weeks of absence for one reason during any twelve month period.

Do I need extra cover?

kingstreet

I don't think you have a need for life cover.

I'd think about income protection, in the form of permanent health insurance, which starts to pay when your employer stops paying you.

This means you'd have long-term income protection from the point of being sick until you're fit enough to return to work, or until you retire if permanently disabled.

With a 26 week deferred period before the benefit starts, this should be relatively cheap for a youngster in a white-collar occupation.

geordie_ben

kingstreet wrote: »

I don't think you have a need for life cover.

I'd think about income protection, in the form of permanent health insurance, which starts to pay when your employer stops paying you.

This means you'd have long-term income protection from the point of being sick until you're fit enough to return to work, or until you retire if permanently disabled.

With a 26 week deferred period before the benefit starts, this should be relatively cheap for a youngster in a white-collar occupation.

As I haven't been in my role for 1 year I only get 4 weeks full sick pay then it drops to SSP after that.. Does that mean I only really need insurance for upto 22 weeks? As my IP would start after that