Life insurance/assurance and a young child

missjy

I have just exchanged contracts on a property and am hoping to complete by the week. I am a single mum and want my daughter to be looked after if anything happens to me. Am going to get my will sorted asap but I was wondering whether to get life insurance and what benefits it would provide my daughter if I was to die? When I had my offer accepted on the property the EA was trying to sell life insurance to me as was my mortgage provider but I don't know how to seperate the 'sales talk' from reality and everyone on here has always been helpful so any advice is greatly appreciated!
Also life insurace/assurance what's the difference

G_M

Life insurance (or assurance) is NOTHING to do with house buying.

However it's a good idea as it would protect your child if you were to die.

You pay a monthly amount and in the event of your death your estate, or your child, gets a lump sum. It can be used to pay off the mortgage, or for her education, living costs etc. You can choose to put this lump sum in trust, so someone you choose (a relative?) decides ow to best use it for your daughter since I assume she is too young to decide for herself.

The size of the lump sum depends on
a) the monthly amount you choose to pay and
b) factors like your sex, age, health etc

eg pay £20 per month, get £50,000 if you die
pay 40 per month, get £75,000 if you die (NOTE these figures are NOT accurate, just examples!)

You MUST shop around as different life companies will give you different quotes. And your mortgage lender may well not offer the best deal.

Search on the internet. Either put in the amount you want your daughter to receive + your age etc and it will tell you the monthly cost OR put in the monthly amount you can afford + your age etc and it will tell you how much your daughter will receive.

Critical Illness insurance is similar, but pays out the lump sum if you become critically ill and cannot work (eg cancer...). Again, shop around and bear in mind these policies are VERY specific about which illnesses they pay out for or not. Often the cheaper policies have long lists of 'exclusions' which they do NOT pay out for, so you need to consider carefully what you want.

More here.

Finally - these are optional insurances. You may decide that in the event of your death you mum/best friend/partner/whoever would take care of your daughter and the property would not be needed so could be sold and the mortgage paid off - in which case you may decide o save yourself the monthly cost. There is no 'right' answer. It's up to you.

missjy

Thank you!! Can I ask another question - can I ask in my will that the house be sold and the proceeds put in a trust for my daughter? She is only 3 - would she then be taxed when she is an adult?

missjy

Reading about it on the net wouldn't it be better for me to pay a regular sum into a savings account for my daughter when she can access if anything was to happen to me?

G_M

I may be wrong (see a solicitor!) but I don't think you can dictate what happens to your assets after your death. Your Estate (house, savings, car, everything) will pass to whoever you leave it to in your will. They decide what to do with it. If you leave it to your daughter in Trust, then you need to name trustees, and THEY decide what to do with it on her behalf - remember, by this point, it will be them looking after your daughter not you. Of course, it makes sense when appointing trustees to discuss this with them so they know your preferences. But ultimately they become responsible.

Paying a regular sum into a savings account is an option, but will give her far less if you die.

SAVINGS: you pay £100 per month into savings at 3% interest. After 2 years you die. Your daughter gets 100 x 24 = £2400 + interest (about £36) so total £2436.

Life insurance: you pay £100 per month into LI policy. After 2 years you die. Daughter gets £100,000.

ps - you can get a free will from a solicitor if you make a donation in your will to certain charities. See here. or firefighters here.