Life Assurance that pays out if you don't die??

DebtDodger

Hi everyone,

This may seem silly but I've been looking into life assurance at the moment - I'm 26, don't have a mortgage but I do have a 2 year old son and £22k debts that I would hate to burden him with if I die before he turns 18 (heaven forbid).

I used the articles here and got a very good quote with LVE over 18 years for £5 per month. However a girl in my office said that she had a policy many years agho which was like half assurance-half savings so when she actually DIDN'T die within her 10 year plan period she got a little lump sum - not the whole amount obviously but a bit.

Does anyone know if this exists and if it has a specific name/provider that I should be looking into. I jus tthink it might be a good idea considering, I'd like to think, my life expectancy is quite good

Many thanks in advance!

DD

dunstonh

Does anyone know if this exists and if it has a specific name/provider that I should be looking into.

They were called endowment policies. They became obsolete and only one provider in the mainstream still offers them. However, theirs is more of a tax wrapper for higher rate taxpayers than it is a life assurance as the life element is minimal.

I jus tthink it might be a good idea considering, I'd like to think, my life expectancy is quite good

No. Its pretty much the worst thing you could do in that scenario. It would cost you about 20 times pm more than a pure life policy and it wouldnt be as tax efficient as a S&S ISA plus pure term assurance. (which is part of the reason you dont see them nowadays)

DebtDodger

Wow thank you! Really REALLY helpful information. I recently made a will and it states that my "estate" will be used to pay off my debts so would I be better having savings (that I can't take out of; no will power!) or is the life assurance a better idea?

I'd be lost in this financial world if it wasn't for the people here! :A

lisyloo

Firstly your son will not be burdened with your debts.
No-one ever has to pay anyone else's debts.

However having said that your estate will be reduced by £22K so he will inherit less.

What are your plans for ongoing childcare should you die?
Do you know who will look after your son? Is this arranged? Is it in a will?
Wills are not just for financial information but also for inportant matters like who you would like to take care of your son.

In general it's not a good idea to mix savings and insurance.
You should get your savings with the best company and your insurance with he best insurer and they probably are seperate companies.

What it is you want to acheive?
Life insurance? (child care?)
oe are you trying to save?

DebtDodger

Hi, yes the main reason I made a will was to put my intention that my mum & dad (who minds my son while I work) would become his guardians if anything happened to me before he turns 18. The main reason for life assurance was because at the moment, with no assets other than a car - which is nowhere near paid off - I didn't see how my "estate" could cover my debts & I didn't want my son to inherit those. My budget plans to pay those off in the next 3 years so it was then just a bonus for him to get a small lump sum so I could leave him something. Probably all sounds very morbid but I'm trying to go from being someone who's finances controlled me to someone who is actually managing my finances! The solicitor asked me about life assurance so I thought I'd do some research to see if it was a relevant product for me?

getmore4less

DebtDodger wrote: »

Hi, yes the main reason I made a will was to put my intention that my mum & dad (who minds my son while I work) would become his guardians if anything happened to me before he turns 18. The main reason for life assurance was because at the moment, with no assets other than a car - which is nowhere near paid off - I didn't see how my "estate" could cover my debts & I didn't want my son to inherit those. My budget plans to pay those off in the next 3 years so it was then just a bonus for him to get a small lump sum so I could leave him something. Probably all sounds very morbid but I'm trying to go from being someone who's finances controlled me to someone who is actually managing my finances! The solicitor asked me about life assurance so I thought I'd do some research to see if it was a relevant product for me?

You cannot inherit debt.

Any life cover should be held outside the estate to avoid it getting use to pay the debts.

Cover within the estate is handy if there are assets and debts and you want the assets not to be sold to pay the debts, often a house with mortgage.

lisyloo

The main reason for life assurance was because at the moment, with no assets other than a car - which is nowhere near paid off - I didn't see how my "estate" could cover my debts & I didn't want my son to inherit those.

If there isn't enough in the estate to cover the debts, then they would be written off. Your son would not inherit them.

If you want to leave your son something then I would talk to your solicitor about getting insurance that's put in trust.
I think this will then be outside of your estate and would go direct to him and not be used to pay off the debts.
It's also worth making sure that your executors know about this arrangement, but you'll need to use a solicitor to ensure it's done properly. I wouldn't advise doing it yourself because if you don't understand the legal implications and fill out a form wrong then it could have an undesireable result, so it's worth paying the professionals for things like this in my view even if they do appear expensive.

lisyloo

Well done for taking control of your finances BTW :-)

DebtDodger

Thanks lisyloo! Yes I read Martin's article and it stressed the importance of putting the assurance policy "in trust" and I would definately check with my solicitor than I'm doing this properly.

And thanks for the pat on the back I'm trying, like everyone here! The advice has been very helpful!