Undecided--Life Insurance vs Income Cover Vs Penson

mailsmsi

I am undecided. Income protection or life insurance or pension which one I invest.

Currently I have workplace pension only paing one percent.

Which current value is 1850.

Do I invest more on workplace pension or

Holloway Friendly income protection of £1000 around £23.50 per month but wait 3 month

dunstonh

I am undecided. Income protection or life insurance or pension which one I invest.

That is a bit like asking whether you should pay the electric bill, gas bill or water bill. In reality, you should be doing all.

jamesd

Which you should do depends on your needs.

You don't need life insurance if nobody who is unable to work depends on your for their income. If someone does then you might want to provide cover of say 25-30 times the income they would need so that they can invest that money to produce an ongoing income if you die. You may not need it either if you have ample savings and investments.

You don't need income protection if you don't care about being unable to work and living on benefits for the remainder of the time until you reach state pension age. If you want to live above the means tested benefit level then permanent health insurance type of income protection that I think the Holloway friendly would provide will pay the specified income level until the defined retirement age if you're unable to do your own occupation. There are potentially cheaper options that only cover you if you can't do any job. You can usually choose what percentage of your current salary to pay and options might be 60%, 75% or similar, with the higher rates costing more. I consider this possibly the most valuable insurance I have because I'd have to live through it for a long time. Do check that it is this type of policy, there are types that would pay out for just a year or so that are cheaper.

The pension helps you to retire sooner or on a higher income level than the state pension would provide. The way to decide on this one is to decide when you want to retire and on what income level then work out what you would need to be paying in to get to your target. That both guides you on what's needed and can make it much easier to accept the inability to spend the money today. I've been doing very high levels of this and other investing having started quite late and with a young retirement age target.

If you don't own your own home you might also need to balance some saving for that purchase. Keep the pension lower if this is the case because that's something you can catch up on later. You can't catch up on PHI or life insurance if you're injured or die while you don't have it in place.

Your question really ends up being how much are you willing to give up in spending today to protect yourself and others against nasty possibilities and how soon and on what income level you want to retire. Some people don't care about the future, others want to be retired by 50 or 40 and work hard to get to that objective.

mailsmsi

That means I need three things
Income protection
Life Insurance
Pension

I have wife and one child of six years old.

What is the best option or one policy covers more ?

Also My work is zero hour contract but permanent Job with Salary £30,000

Kynthia

So you support a partner and child so you almost certainly need life assurance to take care of them should you die. It's the kind of thing that people get once they become a parent and is usually quite affordable if your health is good. Your wife should get a policy too or you have a joint policy as you'd probably need funds should something happen to her.

Pension is also something everyone should have. 1% is almost nothing so you'll need to put a lot more in if you hope to have anything more than state pension to live on. You could live over 30 years in retirement so that £1850 isn't going to go far. If you pay more will your employer match it? Are you paying from gross salary so saving on the tax? If yes to both then for every £8 of take home pay you give up £20 gets invested in your Pension (£2 tax recovery and £10 matched by your employer). I don't know how old you are and how long you have to save but check out the Pensions part of the forum for more info.

Rightly or wrongly income protection is probably the thing the least people get of the three. It's more expensive than life assurance and unlike pension you might not ever need it, so it is often the last thing people get once they can afford it. Does your employer have a good sickness policy, dies your wife earn enough to support you both if you had to live on her money, or would you be in financial difficulty even with a short illness stopping you working for 3 months (never mind something severe for 2 years plus)?

You need to do some if your own research and then contact an IFA, someone independent and not working for a bank or restricted to a very limited market. Try unbiased.co.uk for some advisors in your area or see if any friends or family can recomend someone.

mailsmsi

Zero hour Job income protection insurance
Not supported
1)cirencester-friendly



Available in case of zero hour job:
Holloway Friendly Purely DB1 plan

mailsmsi

Zero hour Contract , No sick Pay No other benefit

I am 40+
Wife Not working
Have a child

Kynthia wrote: »

So you support a partner and child so you almost certainly need life assurance to take care of them should you die. It's the kind of thing that people get once they become a parent and is usually quite affordable if your health is good. Your wife should get a policy too or you have a joint policy as you'd probably need funds should something happen to her.

Pension is also something everyone should have. 1% is almost nothing so you'll need to put a lot more in if you hope to have anything more than state pension to live on. You could live over 30 years in retirement so that £1850 isn't going to go far. If you pay more will your employer match it? Are you paying from gross salary so saving on the tax? If yes to both then for every £8 of take home pay you give up £20 gets invested in your Pension (£2 tax recovery and £10 matched by your employer). I don't know how old you are and how long you have to save but check out the Pensions part of the forum for more info.

Rightly or wrongly income protection is probably the thing the least people get of the three. It's more expensive than life assurance and unlike pension you might not ever need it, so it is often the last thing people get once they can afford it. Does your employer have a good sickness policy, dies your wife earn enough to support you both if you had to live on her money, or would you be in financial difficulty even with a short illness stopping you working for 3 months (never mind something severe for 2 years plus)?

You need to do some if your own research and then contact an IFA, someone independent and not working for a bank or restricted to a very limited market. Try unbiased.co.uk for some advisors in your area or see if any friends or family can recomend someone.

dunstonh

I am 40+

So, your pension should be in the £50k range by now. £1850 is rather behind.

jamesd

OK, working through needs a bit. Your wife is not working but I assume that she could work and could also marry someone else eventually if you die. At six the child is old enough so that she could work so no child care provision needed. Allow say a couple of years of bills for transition time. Maybe 15k a year so £30k needed. Maybe you want to top up income until the child is 18 to make things easier for the child. Perhaps say £10k a year. That would give a higher level of provision with cover of £150k.

If she can't work or can't find another partner then you might need to provide more. Assuming that £20,000 would keep them in the same lifestyle as they have now until the child is 18 then £15,000 due to lower expenses you might want around £500k of cover.

So that's three possible amounts of cover depending on your specific need, preference and just how affordable things are. I suggest at least the £30k level.

PHI I suggest you do. It's long term protection and you and your family will need it if you do become unable to work.

I'll ignore the £1850 you have in pensions at the moment because it's not enough to make a difference.

I give one crude way to estimate how much should be paid into a pension here. At the moment the median average income for a retired household in the UK is about £21,000. With two of you the £8,000 a year state pension level would provide £16,000 of it leaving only £5,000 for you to provide, less anything any pensions she has would cover. If you're 45 now and want to provide this only from a state pension age of 68 then you'd need around 25 * 5k = £125k in today's money in your pension pot. Using the regular savings calculator a monthly payment of £260 a week for 23 years (68-45) at 4.5% growth/interest could produce £125k pot size. So that's a target of £260 a month going into your pension.

Another way to look at it is a target replacement rate of 60% of income that is quite often used. That would be about 18k ignoring tax effects. With potentially 16k from two state pensions you'd need to provide only £2k not £5k so the monthly amount would drop to 2k / 5k * £260 = £104 a month.

What if she's not there when you retire and you want that whole 18k still? Then you'd need to provide £18k - £8k for one state pension = £10k needed. 10k / 5k * £260 = £520 a month gross going into a pension. You probably can't handle over 6k a year gross from 30k gross pay but the £260 level could still rise you from 8k state pension to £13k combined and that would almost all be tax free, so you might want to use that level.

So that's some options you could pick from.

mailsmsi

Many thanks for this explanation.

q1) Is my non working spouse will get state pension ?



http://www.money.co.uk/guides/the-flat-rate-state-pension-faq.htm

http://www.saga.co.uk/magazine/money/retirement/pensions/are-the-new-state-pension-rules-unfair-to-women#

http://www.thisismoney.co.uk/money/experts/article-2899593/My-wife-never-paid-National-Insurance-contributions-retire-nothing.html

jamesd wrote: »

OK, working through needs a bit. Your wife is not working but I assume that she could work and could also marry someone else eventually if you die. At six the child is old enough so that she could work so no child care provision needed. Allow say a couple of years of bills for transition time. Maybe 15k a year so £30k needed. Maybe you want to top up income until the child is 18 to make things easier for the child. Perhaps say £10k a year. That would give a higher level of provision with cover of £150k.

If she can't work or can't find another partner then you might need to provide more. Assuming that £20,000 would keep them in the same lifestyle as they have now until the child is 18 then £15,000 due to lower expenses you might want around £500k of cover.

So that's three possible amounts of cover depending on your specific need, preference and just how affordable things are. I suggest at least the £30k level.

PHI I suggest you do. It's long term protection and you and your family will need it if you do become unable to work.

I'll ignore the £1850 you have in pensions at the moment because it's not enough to make a difference.

I give one crude way to estimate how much should be paid into a pension here. At the moment the median average income for a retired household in the UK is about £21,000. With two of you the £8,000 a year state pension level would provide £16,000 of it leaving only £5,000 for you to provide, less anything any pensions she has would cover. If you're 45 now and want to provide this only from a state pension age of 68 then you'd need around 25 * 5k = £125k in today's money in your pension pot. Using the regular savings calculator a monthly payment of £260 a week for 23 years (68-45) at 4.5% growth/interest could produce £125k pot size. So that's a target of £260 a month going into your pension.

Another way to look at it is a target replacement rate of 60% of income that is quite often used. That would be about 18k ignoring tax effects. With potentially 16k from two state pensions you'd need to provide only £2k not £5k so the monthly amount would drop to 2k / 5k * £260 = £104 a month.

What if she's not there when you retire and you want that whole 18k still? Then you'd need to provide £18k - £8k for one state pension = £10k needed. 10k / 5k * £260 = £520 a month gross going into a pension. You probably can't handle over 6k a year gross from 30k gross pay but the £260 level could still rise you from 8k state pension to £13k combined and that would almost all be tax free, so you might want to use that level.

So that's some options you could pick from.

mailsmsi

q1) Is my non working spouse will get state pension ?

q2) Best option for savings workplace pension or savings account or invest stock?


My situation
Age 40+
Wife Not Working
One Child age 6
Currently 1850 in workplace pension