If IFA recommends Life assurance/increase what measures would they be using?

stoozie1

Our IFA recommended we seriously consider this for my OH.

I have crunched all the numbers again, and researched online cannot see why this is necessary.

But as I am not the expert, I wondered if IFAs have access to standard guidance I'm not aware of.

Can anyone point me in the right direction.

dunstonh

I wondered if IFAs have access to standard guidance I'm not aware of.

IFAs would carry out a shortfall calculation. There are various tools available to do this and most involve a range of assumptions (growth rates, inflation etc).

Can anyone point me in the right direction.

your IFA can.

Most people seriously underestimate the amount they need to be covered for. Ballpark figures tend to be around 15x income plus debts but can be more depending on other assumptions. it can also depend on investment risk attitude (a spouse likely to leave it in the bank would need more than a spouse likely to invest it in risk based investments)

stoozie1

I probably shouldn't have called her my IFA, as we aren't in a contract with her (minimum fee £750, insufficient needs at present) so this was just what I took away from a preliminary meeting. But if I gather a few needs together I will certainly ask her. Are they not available to the general public?

Thanks for the ballpark calc. To clarify the 15 x income is the income of the deceased as a lump sum? How can I account for the 5 DIS pensions he also would leave, as I am imagining they reduce the large lumpsum?

I understand if it's not possible to answer and many response for the advice you did give.

dunstonh

Are they not available to the general public?

Probably are if you are willing to pay for them. Companies dont tend to allow their products to go for free though unless it is a sprat to catch a mackerel. All these tools though are just graphical front ends to a spreadsheet. You could do this on excel or a pen and paper if you wanted.

To clarify the 15 x income is the income of the deceased as a lump sum?

Its a quick and dirty figure to get you thinking of ballpark. It has no real accuracy and could be much lower or could be higher.

Some people, when investing, do not like to see their capital fall. So, they may want a lump sum of 20x income drawing around 3.5% a year (with a bit left for inflation) to last them for life. Or they may be happy for the capital to decline and to run out by a certain age.

How can I account for the 5 DIS pensions he also would leave, as I am imagining they reduce the large lumpsum?

5 times or 5 different schemes? Death in service normally ends when you leave the employer. Different pensions have different death benefits.

First thing to do is work out the need and then deduct what there is (such as pensions, savings and investments)

stoozie1

sorry, by 5 DIS pensions I meant current provider providing pensions for 5 of us. (Myself and 4 children)

At present we have a lump sum of £130k in the event of his DIS, a pension to me of 14500 and half a years salary at first, and £2500/year for the children until age 23.

We have no mortgage and 13k in cash (net)

We have very modest outgoings and so I was surprised we were underprovisioned.

dunstonh

What is the income that would be lost on death?

stoozie1

42k after pensions last year (it varies but that's a fair mean)

dunstonh

Ok. So, that means you would go from a lifestyle funded on £42k to one of £14.5k.

Whilst you say you have modest outgoings, you only have a small amount saved in cash - just equivalent to 4 months income. So, that would suggest you are spending most of your income currently.

So, on a very quick and dirty look, there does appear to be a potential shortfall as a drop of income of that much would have to hit living standards.

The £130k DIS could provide around £3900 a year of that income shortfall. But it is still short. During your life you will also have capital requirements. Cars, boiler, repairs, refurb, holidays, supporting children etc. So, you will need capital for those. Your £13k saved is not going to go far and if you are using the £130k for income provision, then it will run out if you also use it for capital.

stoozie1

Thanks. I see why it would appear there's a shortfall.

We save just over 2k a month at present, and by low outgoings I do mean really low outgoings!

Perhaps I should have explained that more to the IFA, although I did give her the totals.

ThinkingOutLoud_2

While it depends on your OH's health - the peace of mind should the worst happen in knowing you and your four children can carry on financially at least as you are now is likely to be comparatively "good value".

You don't mention what provision there is if you should go suddenly - could he really carry on working as now and bringing up the kids? This is where a Family Income type of policy can be a good solution.

Certainly worth considering. Remember the older you get the more that life policy will cost and there is always the risk a medical conditions arrives and puts the premiums up further.