Confused by Life Insuarance

emmamcr

When we took out our mortgage 6 years ago we were told we had to have Life insurance and took some decreasing term insurance connected to the mortgage. We insured for £150,000 on a mortgage of £75K to allow for some leftover money.

4 children later we decided this wasn't enough and took out a further 150K, just as a 20 yr insurance policy.

I am now trying to look at our finances carefully and want to see how good a deal our insurance is, but am not sure what to look for. Ideally, If one of us died I would like the other to get a lump sum of about £300K to pay the mortgage and be able not to work for a while. Do I need a specific policy connected to the mortgage or can we have one standard policy?

Is there anything else we should think about? our house is currently worth about £300K and our mortgage is £105K now.

Thanks

BrightonBoy_2

I tend to keep the two needs apart from each other. Decreasing term will repay the mortgage if one of you dies - and will be set up to be the same term as the mortgage and as it says, the sum insured will decrease broadly in line with the outstanding mortgage amount.

The need to replace income is a bit different. Term will depend on, say, the age of your children, cover will not be decreasing (you may even want to increase it to take account of inflation) and the amount of cover will be related to the income that would be lost multiplied by the number of years that you want to replace that income for. So say your youngest child is 5 and you expect him to be dependent on you until age 21, your income is £20k per annum then you might look at a sum insured of £20k times 16 years which is £320k. You might then reasonably reduce this amount as the mortgage will have been paid off but thats a basic way to start calculating need. Its also why there is such huge underinsurance of lives in the UK because few ever really work out how much cover they need.

You can buy these as products from different providers depending on who gives the best price. Don't go direct to the insurer, there are cheaper on-line brokers who offer best price from a wide range of providers eg More Than.

jasonking

You could consider a joint life first death level term plan for £300k over a term that takes your youngest child to an age of non-dependancy (21,25 etc). You might want to index link the sum assured as £300k in 10 yrs time wont seem as much as it does today.

Alternatively you could do one decreasing plan to cover the amount and term o/s of your mortgage and another level one to pay out the difference (£195k), again consider index linking.

Also consider doing individual plans rather than joint as you can 'double' your cover for sdometimes just a few pounds more.

Other plans like Family Income Benefit & Income Protection (PHI) would be worth doing some research on as well first.