Life Insurance Discussion

Wutang_2

brianrhill wrote: »

they aren't independent advisers, they're salespeople - you are simply a way for them to hit their sales targets.

They may be salespeople but you don't know what they have been offered Brrrrrian!

Willman_Rodders

Hampshirebabe wrote:

and better still to get a monthly amount for 18 years or so instead of a fixed amount

I doubt it. Without seeing the plan details I suspect you are being offered a policy that pays out a fixed amount for the remaining term of the plan after the death of the life assured - as opposed to a fixed lump sum. So, lets give you an example comparison - Plan A is a traditional life policy; Plan B is the 'Fixed income Plan'. Both plans runs for 10 years. Plan A costs £10 per month, while plan B costs £9 per month. Plan A pays out £100,000 at the time of death of the life insured. Plan B pays out £1000 per month, each and every month, from the death of the life insured until the expiry of the 10 year term.

Both plans commence on the same date. 9 years and 6 months later the life insured dies. Plan A pays out £100,000. Plan B pays out just 6 x £1,000 i.e. £6,000 in total. In Plan A's case you will have paid 114 x £10 = £1140. In Plan B's case you will have paid 114 x £9 i.e. £1026.

Plan B offers a higher potential payout (overall) if the life insured died 1 day after taking out the plan. i.e. £1000 x 10 years x 12 months = £120,000 - but the (overall) benefit reduces each and every month until the very last month where, in effect, you pay one months premium for potentially 1 months benefit.

Plan B type policies look good on paper when compared with the more traditional level term life policy. They often have higher overall benefits (see above) for a lower premium - and therefore appeal to people where financies are tight. This feature can also be used by salespeople when trying to sell their product in preference to you buying a competitors level term plan - as it masks the real benefits of the plan. Personally I do not think they offer good value for money.

is it better to get 3 from one company rather than 3 different companies?

Again, personally, I doubt it. If I understand you correctly you have existing policies - and the salesman is suggesting you cancel these in effect and buy a single, bigger plan from him/her. Life insurance increases with age, and the earlier you buy it the better value it is. To cancel an existing policy and rebuy will (almost certainly) cost you more in real terms - but I acknowledge it does depend upon the companies involved. And a straight comparison is not easy; e.g. your existing plans may include terminal illness cover, and other benefits. The proposed new one may not.

All these points should have been explained to you by your adviser. The fact that they appear to have not been is sounding alarm bells for me. I recommend you do seek alternative advice from an IFA - who will have access to the whole market place and not just one company's product range.

NB It is 6 years since I was an IFA so the examples above may be totally unrealistic in terms of cost v benefit - but hopefully the concept is clear.

dunstonh

NB It is 6 years since I was an IFA so the examples above may be totally unrealistic in terms of cost v benefit - but hopefully the concept is clear.

Its much the same as it was 6 years ago. Premiums fell for a while but then increased again so not much in it. Only change of significance is the increase of providers allowing segments within the same plan. e.g. one policy but able to put PHI, DTA, LTA etc all on the one plan. I dont recall that being so common 6 years ago with only a few doing it.

hampshirebabe

Thanks WillMan, you've answered my queries perfectly. Makes perfect sense, I'll get a couple of quotes for DH's life insurance and stick with a lump sum.

brianrhill

without wishing to harp on, several people have now strongly suggested to the original poster that she seeks advice from an IFA, but she's still going to just go and get a couple of quotes, which I presume is off a comparison site or direct from a couple of providers, depsite being able to clearly see that current and ex-IFA's know their stuff. Which is bizarre.

All hampshirebabe has really considered is the difference between Family Income Benefit and Term Assurance.

Other IFA's will use many of the following options to assess the suitability of life cover:

1. Existing provision in place provided through such as death in service benefit and pensions (potentially excluding protected rights portions)
2. What's to be covered, for how long, why, and is this likely to change?
3. What is a provider's financial strength and service record?
4. Guaranteed or reviewable rates?
5. Ability to make ad-hoc variations to the term
6. Ability to make ad-hoc variations to the amount of cover
7. Ability to add and remove benefits such as critical illness
8. Decreasing, level or increasing cover
9. Ability to change between decreasig, level and increasing
10. If waiver is included, is it on own occpation basis or suited or ADL?
11. Life buy-back option required?
12. Ability to review underwriting subsequent to application starting?
13. Ability to convert plan type to whole of life
14. Is there a need to write the plan in Trust? Will it potentially create an IHT issue?
15. Guaranteed insurabilty options required, up to what age and under what circumstances?

This is not an exhaustive list, but you certainly won't get these filter options through any consumer facing website that I'm aware of and you certainly won't get it from the providers direct.

Brrrrrrrrrrrrrian
(thanks Wutttttttttang ;0)

Hence the reason why many of my clients find that what they thought they'd bought online or direct was driven by cost instead of suitability, and have spent too much for too little.

Little_Miss_Penny_Less

Ok, this may appear to be a silly question to some of you more knowledgable people, but I hope you'll humour me since I've never dealt with life insurance before...

Is it better to take out a longer term of insurance? i.e. 20 years instead of 10 years. The premiums are currently only a couple of £'s difference per month so I am thinking that it might be better to take the slightly more expensive 20 year option so that premiums don't go up when I get 10 years down the line and the premiums are higher since I'm 10 years older and may have more of a medical history by then?

Background on me: 29yr old female, smoker for insurance purposes (only just gave up), wanting to cover £150,000 mortgage debt (mortgage term stands at 20yrs but we are overpaying to bring this down to 10yrs and should be able to continue this for the foreseeable future).

Life Insurance was not really a major priority for us before now as one of us could have covered the mortgage payment should the other die, but now we are trying for a baby so want to be covered should one of us die, leaving the survivor to be able to repay the mortgage and live comfortably enough on one wage whilst paying childcare fees etc. I'm thinking level term with £150,000 payout, so that even if the mortgage is lower there would be some cash available to my survivors.

I know you can't give advice but am I on the right track? Has my research yielded the correct answers or am I way off base with the above conclusions?

dunstonh

Is it better to take out a longer term of insurance? i.e. 20 years instead of 10 years.

Depends on what the financial need is. If the financial need is say 12 years then neither 10 or 20 years will be suitable.

The premiums are currently only a couple of £'s difference per month so I am thinking that it might be better to take the slightly more expensive 20 year option so that premiums don't go up when I get 10 years down the line and the premiums are higher since I'm 10 years older and may have more of a medical history by then?

Premiums are averaged over the term so there is no reason to think that a second 10 year period would be any more expensive than doing 2x10 year periods. Guaranteed insurability is a potential issue but not something you should be too concerned with unless you are older.

but now we are trying for a baby so want to be covered should one of us die, leaving the survivor to be able to repay the mortgage and live comfortably enough on one wage whilst paying childcare fees etc

So you have two financial needs there with different terms. Mortgage with 20 years and when child comes around 25 years. So, one policy of 20 years is not going to be enough and 10 years is also unsuitable.

I'm thinking level term with £150,000 payout, so that even if the mortgage is lower there would be some cash available to my survivors.

So, if mortgage is £150k and life cover is £150k there will be nothing for the partner to bring up the child. Even if the mortgage was 100k,that would only leave £50k. £50k to provide and income would supply £2500 a year. If the partner has to cut down to part time or cease working then £2500 isnt going to go far.

am I way off base with the above conclusions?

At the moment, it appears you are understating your financial need. However, we dont know your pension provisions (pensions pay out on death as well so should be used in any shortfall analysis)

stephenni1971

dunstonh wrote: »

Premiums are averaged over the term so there is no reason to think that a second 10 year period would be any more expensive than doing 2x10 year periods. Guaranteed insurability is a potential issue but not something you should be too concerned with unless you are older.

I'm afraid my take on it would be a bit different to Dunstonh.

With all aspects of life and protection cover, you have two main variables, the term of protection and the amount of cover. In many ways protecting a mortgage debt is the simplest thing to do as you know exactly the term you need and the amount. Therefore if you have a 20 year mortgage I would argue you should always consider taking the required cover to suit the existing term. The fact that you are hoping to repay sooner should not alter your requirement for cover, as your circumstances may change and you may not repay as early as you had hoped.

As for additional cover to protect your husband and future children, thats where the calculation is more complex, do you want to be able to provide cover to replace your income, give a lump sum or mix of both? Would you like cover until children are 18, 21, 25?

Ideally it would be worth your while speaking to an IFA who can conduct a full review of your existing affairs and make a recommendation on suitable cover to fill any shortfalls.

dunstonh

I'm afraid my take on it would be a bit different to Dunstonh.

its not. Your take is the same as mine. What you went on to explain was what I said as well in the next bit.

What I was [trying to] refer to in that line was that if you took the premiums of a 20 year plan and the premiums of a 10 year plan followed by another 10 year plan then assuming clean health the cost at the end would largely be the same. You would pay less in the first 10 years and more in the second 10 years but they would average out to the be same. I was just talking about pricing and not suitability to cover a certain need.

The cover should meet the term of the need. Currently the need is 20 years and that is what the term should be. The child, when its coming, would have a need of around 21-25 years depending on your views about when you think they will cease to be dependent. There is also the possibility of a need until retirement on one or both or some of both incomes depending on the working patterns and income being received.

Whatever the scenario, £150k is not going to be anywhere near enough.

Little_Miss_Penny_Less

Dunston & Stephenni, thank you for your responses. I think you are both right in that this needs more consideration and I think I will contact an IFA as I am now concerned about pensions etc as well and am nowhere near knowledgable enough to know whats for the best there now that our circumstances are changing.

I was purely considering the Life Insurance policy as a guarentee of my survivors being able to repay the mortgage if I should pop my clogs. I hadn't considered leaving enough to cover my income for any length of time as I think my husband could cope on his wage if the main bill of the mortgage was gone. Also, while comfortable on our wages we are not well off and I don't know that I could afford additional life insurance to cover an income for any number of years - being able to afford life insurance at all is a bit of a luxury to be honest.

However, what amount would you recommend then to support a child per annum in the event of my death? Perhaps I can get some quotes on this for comparison and consideration to going down that route.