Life assurance -where to start and what to expect?

mustbesavvy

At the age of 31 and with my first child now 2 years old I'm trying to do the grown up thing and sort out some life assurance. I'm trying to figure out where the hell to start. Martins guide was very useful and I did some quotes in cavendish and moneyworld which were very different. Both quoted legal and general as the best but one was at £25 and one at £80 for £500k of cover on 30 year terms. The thing is I'm not sure if this whole pay a 1 time fee is better than just going direct. I understand you get the fee refunded if you don't take the policy but it seems to me that as the quotes are basically worthless until the insurer does their in-depth checks, the premium could change so much that paying the broker was wasteful. Sure you get the refund but I'd love to know how much money they make from the interest of having all those £25 fees for 'x' weeks until you discover the insurers final quote is 3 times the brokers indication of what you would be paying on the policy.!

So question 1 is should I bother with the broker?

Question 2 is what can I expect with the application and what information am I going to need to disclose? Not that I have anything to hide, but is it one of those things where I might as well get years of records from my doctor before even putting in an application? I just don't know how detailed this stuff gets. I have no health problems, don't smoke and I'm 31 so hopefully this is a fairly generic stereotype. I guess more than anything I'm concerned about ensuring my disclosure on stuff is totally accurate to avoid no payout in the event of my death. Is it literally a case of I need to know how many times I've visited my doctor in the last 3 years?

Any advise on what to expect or how to tackle this from anyone that's been there would be very much appreciated.!

Thanks.!

ACG

1) Why wouldnt you go and see a broker? They dont charge a fee (in the main), your getting proper advice by someone that has taken the time to find out about you, what you want and what is important for you. (They/We get paid by commission).

2)In the main, you will be asked 3 types of medical questions.
- Things relating to you in the last 5 years.
- Things that have happened in your lifetime.
- Your family history.

All of these are expected to be answered to the best of your ability. For example if you had 3 months off work with stress 10 years ago depending on the insurer and how the question is asked (ie in your lifetime or in the last 5 years) you would be expected to answer that.
You might not know your relatives health - if you have a long lost uncle in Australia or something.

Theyre not going to want to know about you having flu in year 9 at high school for example.

I think an advisor would be a good idea if your looking at a £500k sum assured. They may consider placing the policy in trust to avoid anyone having to pay IHT on it.

dunstonh

Both quoted legal and general as the best

I doubt the quoted L&G as best. I think you mean they quoted them as cheapest.

The thing is I'm not sure if this whole pay a 1 time fee is better than just going direct.

I think you will find going direct is more expensive.

Sure you get the refund but I'd love to know how much money they make from the interest of having all those £25 fees for 'x' weeks until you discover the insurers final quote is 3 times the brokers indication of what you would be paying on the policy.!

Does it matter? They lose money on every person that pulls out so if they make 3p then good for them.

Question 2 is what can I expect with the application and what information am I going to need to disclose?

A selection of health questions.

Not that I have anything to hide, but is it one of those things where I might as well get years of records from my doctor before even putting in an application?

no its not.

Is it literally a case of I need to know how many times I've visited my doctor in the last 3 years?

Yes. Short term history needs to be declared. However, as its short term, that should be a doddle.

kingstreet

What's the thinking of £500k over 30 years?

Where you are covering a definite need, it normally has a term which goes with it. For example, if you are looking for family protection cover it's usual to run the cover until your youngest child's 18th or 21st birthday.

You may run it to retirement age if you have a non-working spouse. If your spouse does work, provide enough funds for them to take leave from work for a time following bereavement.

If you are considering a level term assurance, think about family income benefit. This is cheaper as it's effectively decreasing cover. If, on your death your spouse would lose your net income, for example, £30k per annum, take a FIB for that amount over one of the periods mentioned earlier.

Finally, don't forget trusts. If you write a LTA for £500k and die tomorrow with the benefit passing into your estate, that would cause an Inheritance Tax charge of £70k in the hands of your children. A policy written in trust also bypasses your estate and avoids the delays an application for probate can bring. The benefit can be paid quickly to those you wish to receive the money.

You obviously need advice. I'd suggest an IFA who will plan your needs properly with you and will help you set up your cover and trust in the right way.

mustbesavvy

ACG:

Why wouldnt you go and see a broker? They dont charge a fee (in the main), your getting proper advice by someone that has taken the time to find out about you, what you want and what is important for you.

Cavendish and Moneyworld are non advice brokers, so you're suggesting a different broker that will discuss the requirements with me?

kingstreet:

What's the thinking of £500k over 30 years?

The theory is based on what I'd read here - 10 times your salary (this is actually less than that, but this seemed to me to be sufficient to see my family through until my kids reach 18, with careful investment) and the 30 years was really me assuming that as this sees me through until I'm 61, then if I'm not dead by that point my dependency should be insignificant enough that my dying after the policy expires will pose no issue.

If you are considering a level term assurance, think about family income benefit. This is cheaper as it's effectively decreasing cover.

Not something I'm familiar with, I obviously need to look at this. I always get slightly nervous with the lack of assurance that comes from cover that decreases over time.

You obviously need advice. I'd suggest an IFA who will plan your needs properly with you and will help you set up your cover and trust in the right way.

Any recommendations?

kingstreet

£500k at the outset might be correct, but is £500k still needed after 10 years? What about if you die the day before the policy expires? The £500k would be nice, but it doesn't match the need.

If you are replacing your net income, say the £30k per year I mentioned, FIB will pay that £30k each and every year until the expiry of the policy.

If you die in year one, it pays £30k a year. If you die in year ten, it still pays £30k per year. The longer the policy is in force, the fewer lots of £30k the insurer needs to pay before the end of the term. That's what makes it cheaper.

Unfortunately, a broad brush 10x income multiple isn't going to suit everyone. Some may be underinsured using that method, some will be overinsured. You also need to take into account other cover you have, such as death in service cover.

Speak to relatives and friends for an IFA recommendation.

mustbesavvy

If you are replacing your net income, say the £30k per year I mentioned, FIB will pay that £30k each and every year until the expiry of the policy.

This I get, but while £30k would theoretically meet requirements now, the chances are it won't sustain the same quality of life for my dependants 5, 10, 15 years down the line. It sounds like I do need to look in to this though just so I've looked at all my options.

You also need to take into account other cover you have, such as death in service cover.

I work for a small company and have no such benefits, pension, etc. The life assurance policy would be the total sum of provision for my family, which is why it's crucial I get it right.

ACG

Having some cover in place is usually better than having none.
But if you were to die, as has been stated would you really want to land your kids with a £70k IHT bill (On top of whatever else IHT may be charged on (your property and any savings etc).

Would you have looked at Trusts had you not come on here? What else are you missing out on by doing a spot of DIY?

I dont know your circumstances in full, but not many people need £500k worth of cover. You may be over insuring yourself, which isnt a major thing but you might be paying for something you have no need for.

The other thing to consider is if your working for a small company - presumably the sick pay isnt too great, what would happen if you went off sick? State benefits pays out between £65-100 per week. You might want to think about Income Protection.

Appologies if any of this sounds a bit strong, but i would prefer to see you get it right.

With regards to recommendations, you could try unbiased.co.uk. But if you are in the North East or North West or Northern Ireland i used to be an account manager for a life office and know some good advisors in those areas.

kingstreet

You can index-link the FIB so it keeps pace with inflation. My use of the set figure was to demonstrate to you that the sum assured doesn't reduce each year, but that the reducing remaining time determines how many payments would be made based on the date of death.

Hopefully, this will demonstrate to you the benefit of advice. Making a mistake can be a lot more expensive than a couple of quid a month on the premiums.

I agree with ACG about income protection too. Protecting your income while alive is much more important to most of us than when we're dead.

Willow_wish

As a recent recipient of Life insurance following my husbands death, I would just like to add a couple of points. Whilst it is nice to think that you can leave maximum amount to your family if you die, in my case covering the mortgage and paying off the debts were my only real concerns. I have done that so I'm more than content to handle everything else. Don't stretch your current outgoings over insuring yourself because hopefully it will never be needed. We used a financial advisor years ago to set the cover up. He handled everything for us which was great and got us a good deal (hubby had other medical conditions that made him a nightmare to insure in the first place!). The benefit of this to me was 2 days after he died I called the IFA who then sorted the claim out for me, giving me one less thing to worry about/ deal with! Whichever road you decide to go down, just make sure you get something adequate in place - it truly has meant one less worry for me, and I shudder at the thought that I appear to be the only one of my friends who actually has any Life insurance at all (all in our 30's!).

lisyloo

However, as its short term, that should be a doddle.

I don't agree with this (perhaps I go to the doctor more than other people).
I wouldn't be able to answer how many times I'd been to the doctor in the last 3/5 five years without looking at records.
As well as illness, I go for routine checks e.g. smear test and also leisure e.g. travel, diving, piloting etc.
A lot of the things I go to the doctor are are completely forgettable e.g. mole that you might be worried about but turns out to be nothing.
Perhaps I fit into the "worried well" category, but I find it a really impossible question without getting either the doctors notes or keeping my own.