Life Insurance No Mortgage

Spuggy200

Hi

32 years old, wife doesn't work and one 18mth old child, both dependent on my earnings.

Looking at life insurance, yes I should have sorted it at least 18 months ago but I haven't slept for 18 months so I've been a bit of a zombie.

Renting at the moment for probably the next two years before getting a mortgage. Earn 35-50k year (self employed so earnings can go up and down).

- Should I get life insurance for 2 years and change when I get a mortgage? Rent is 11k per year
- Should I get covered for 50k and pay whatever the monthly rate is for that type of cover
- Should I get a longer term insurance and change policy when I get a mortgage?

Thanks in advance

Nebulous2

No-one can possibly answer these questions for you. You need a calculation on how much your family would need to live on if your income stopped because you had died. You also need to think about how you would all survive if you were unable work because of ill-health.

As a starter though, if you earn £50k a year, how long do you think £50k would last your wife and child? Would that provide a secure future for the two of them?

This is one area where I think you should get some proper advice, rather than some views over the internet.

dunstonh

You currently have a family need for life assurance. When you get a mortgage you will gain an additional need for further life assurance on different terms. So, you would get an additional policy then.

- Should I get covered for 50k and pay whatever the monthly rate is for that type of cover

that is unlikely to be enough unless you are low paid and/or have a large pension value and/or have large personal savings and investments.

Spuggy200

Thanks dunstonh.

In regards to the 50k, it was just a figure really as I don't know much about how it all works. I was thinking that would cover 2 years living expenses (at least) if my wife didn't continue with the business or didn't work for 2 years - the business could be sold I suppose. Yes, 2 years isn't a lot of time particularly when my daughter is so young but the business would still be earning if I died, so it would be a 50k payout that could pay for university for my daughter and put in a savings account/trust fund until she was older - I'm sure my wife would do that after the initial shock of me dying.

Spuggy200

Nebulous2 wrote: »

No-one can possibly answer these questions for you. You need a calculation on how much your family would need to live on if your income stopped because you had died. You also need to think about how you would all survive if you were unable work because of ill-health.

As a starter though, if you earn £50k a year, how long do you think £50k would last your wife and child? Would that provide a secure future for the two of them?

This is one area where I think you should get some proper advice, rather than some views over the internet.

Thanks, that is what I'm looking for is views over the Internet so I can be more prepared - I do like to take on board other people's opinions and views even if I don't move forward with them.

50k would last 2 years if my wife didn't work. But as mentioned above, I run a business that could a) be sold for much more than that, b) could be continued by my wife earning the same or she could hire people to run it while remaining a director.

No 50k wouldn't secure a future for my wife and daughter but 850k would as that would be 50k for the next 17 years for them....is that more of the figure I should be insuring myself for?

What til she hears that she won't have to work ever if I die!!:rotfl:

Annisele

Spuggy200 wrote: »

I run a business that could a) be sold for much more than that, b) could be continued by my wife earning the same or she could hire people to run it while remaining a director.

I'd have some concerns about that. Sometimes entrepreneurs overestimate how much their business is worth - the value is sometimes in the skill and energy of the entrepreneur, and not in the business itself. Also, a sale forced by the entrepreneur's death is unlikely to happen at the best time for the business to be sold.

There's also the possibility your business needs "key man" insurance. If it's big enough to survive without you, that doesn't necessarily mean it's big enough to thrive without you.

Could your wife really earn the same as you? Couples usually have different skill sets, and it's possible that your skill set is better suited to the work you've chosen to do. Even if she could - could she work full time and still care for your child? If not, how much would childcare take out of her earnings? (The answer to that question might also suggest you need life cover for your wife - if she died, could you afford to keep working?)

Kynthia

I have a nearly 2 year old and have booked to see someone to discuss life insurance and PHI. I meant to do it earlier too but some big events distracted me.

The things I am thinking of for life insurance are:
What is my partner's earning potential
What other income would there be (death in service, pension)
What childcare costs
What is the outstanding mortgage

So I need to leave my partner enough to be able to support my daughter without having to worry about bills too much. Childcare costs won't last forever and my partner can earn an average salary, less than me but not bad. However I also need to bear in mind what is likely to change such as future employers may not offer my current death in service figure, that I'm too young for much of a pension payout but that will increase over time, that the outstanding mortgage will decrease over time unless we move, etc. So I think a reducing amount that clears the mortgage should be enough as my partner can earn enough to live well if there's no mortgage, and savings/death in service/pension lump sum should cover the time my partner is grieving and my daughter still needs childcare. As life insurance isn't expensive I'll probably get cover for both of us to make my life easier with my daughter should anything happen to my partner.

For income should one of us be too ill to work I'm considering:
How long our employers pay our salaries when sick
How much one of us can earn if the other isn't working
What savings we have
What our essential outgoings are

Again things can change as at the moment we have very good employers that pay you for a long time when sick and are supportive if you temporarily can't work full hours, but that is changing for one of us. So that could change what cover I get. PHI is cheaper the longer you wait to claim it, ie set a 6 month delay after you're too ill to work, so your employer and savings are relevant. Also whether both of you need it or you only can't manage if one of you couldn't work is relevant. Then consider how much you need and whether it's for a set period of time or ongoing until retirement age (I think as I haven't met the advisor yet).

Spuggy200

Annisele wrote: »

I'd have some concerns about that. Sometimes entrepreneurs overestimate how much their business is worth - the value is sometimes in the skill and energy of the entrepreneur, and not in the business itself. Also, a sale forced by the entrepreneur's death is unlikely to happen at the best time for the business to be sold.

There's also the possibility your business needs "key man" insurance. If it's big enough to survive without you, that doesn't necessarily mean it's big enough to thrive without you.

Could your wife really earn the same as you? Couples usually have different skill sets, and it's possible that your skill set is better suited to the work you've chosen to do. Even if she could - could she work full time and still care for your child? If not, how much would childcare take out of her earnings? (The answer to that question might also suggest you need life cover for your wife - if she died, could you afford to keep working?)

Agree about business owners over-estimating their company's worth - I guess the best route is to use the past 12 month's revenue as an indicator (it's around 95% profit). Even outsourcing/white-labelling to a competitor could easily net 50-90% of the earnings.

It's a small business, my wife and I are the only employees/directors. It's an online business so it could be outsourced quite easily - I don't though as I'm a control freak. Current clients may get the hump at a change to their service but new ones come every week or two anyway.

Yes, she could easily earn the same and more. I have been speaking to her about writing a handbook on what to do/how to run it/how to sell it/how to outsource it so to speak should anything happen to me. Probably will get that done over the next few weeks.

It would be easier for her to manage freelancers/company that is outsourced to. Yes, she could work at night to save on childcare. My daughter will probably be going to nursery soon anyway. Childcare costs would be just nursery. If my wife died, yes I could easily handle looking after my daughter and running the business - I do that now anyway as my wife suffers from severe depression and I've been doing everything anyway (obviously it would be tougher than it already is but I'm sure I'd manage).

Thanks for all of those questions, really appreciate it, this is why I started the thread so I can feel like I've got options covered should anything bad happen.

Kynthia - sounds good, could you update this/PM me when you've seen the advisor?

lizziesharples

Another thing to consider if you are the sole earner is family income protection. This can be a more long term benefit paid monthly rather than in a lump sum to cover your families monthly expenses if the worst were to happen.

That's not to say that there isn't a need for life insurance as well. Remember, the younger you are when you take out cover the better the premium will be!