Life insurance terms - min or max?

Herzlos

I'm looking at taking out a smallish policy (enough to cover mortgage and loans), and being offered pretty different monthly figures depending on the term. I'm assuming that it's just a case of averaging out the risk (so a 40 year term is covering me @ 33 all the way up to 73).

Does it make sense to go for the smaller term and re-negotiate every time it runs out, or go for the longest and stick it out?

Or does it make sense to link it to a milestone?
For instance, with a 17 year term I'll be 50, the kids will be 18 and 20. The mortgage will have also gone from 28 years down to 11, most loans should be paid off and so on. At that point I can probably knock the payout down from £100k to £50k.

wjr4

Do you have pensions (defined contribution/personal pensions) as they could also be factored in?

HappyHarry

Herzlos wrote: »

I'm looking at taking out a smallish policy (enough to cover mortgage and loans), and being offered pretty different monthly figures depending on the term. I'm assuming that it's just a case of averaging out the risk (so a 40 year term is covering me @ 33 all the way up to 73).

Does it make sense to go for the smaller term and re-negotiate every time it runs out, or go for the longest and stick it out?

Or does it make sense to link it to a milestone?
For instance, with a 17 year term I'll be 50, the kids will be 18 and 20. The mortgage will have also gone from 28 years down to 11, most loans should be paid off and so on. At that point I can probably knock the payout down from £100k to £50k.

If you take out a short term policy, you may not be able to take out a new policy when it runs out, if, for example, your health declines.

Life cover is not like car insurance where you should look to re-broke every year. With life insurance, you should take out a policy to last as long as you need it.

However, if you need lower cover in the future, you could always look at separate policies.

e.g. if you needed £100k of cover for the next 15 years, then only £50k of cover for the following 15 years, you could look to either:

(i) Take out 1 £100k policy that lasts 30 years, even though this is more cover than you need.
(ii) take out a £50k policy for 30 years, and a separate £50k policy for 15 years. This means in the event of a claim within the first 15 years, both policies will pay out to the total of £100k. In the event of a claim in 20 years' time, the first policy will have lapsed, but the second policy will pay out the £50k necessary.

It is quite possible that option (i) will be cheaper than option (iI), depending on the amount of cover needeed.

Aretnap

Other options would be a decreasing term policy, where the amount of cover decreases gradually as the term goes on (usually it decreases at a rate which roughly corresponds to the repayment of a mortgage, though it doesn't have to be directly tied to a mortgage), or a family income benefit properly, which would pay out a monthly sum until a pre-determined date, rather than a lump sum.

I'd echo the advice that it's best to think about the needs you'll have over your whole life (as far as is possible - obviously this involves making some assumptions) and covering them while you're still young and healthy. The last thing you want is to be in need of a new life insurance policy in 15 or 20 years time after you've been diagnosed with diabetes, or worse, while you're undergoing treatment for cancer.

I don't know what other protection you have, but I'd also suggest that £100K of cover sounds rather low for someone with two young children. If you were hit by a car tomorrow it would average out at about £5K per year until they reach adulthood - whcih isn't a huge amount. Would your other half have the means to cope? (Obviously this may not apply if you have other protection or substantial savings, or if your OH is a high earner, or likely to marry a millionare as soon as you pop your clogs!)