Life insurance or mortgage protection

ElephantBoy57

Weighty1 said:

you have your son but if he lives in Germany I'm guessing he is not financially dependent on you?  If not then you could argue that there is no requirement for life cover (although you may want to leave him the property as an inheritance).

I have never taken out life insurance. I have around £30K left on my mortgage, if I died tomorrow my adult daughter would get £70K+

I don't see any need to insure my life, better to pay off the mortgage quicker, then in 10 years time, she would inherit the full value of the house.

Weighty1

My memory is obviously flagging as the premiums are closer to £26k p.a. than 34k so maybe I'd worked out the total premiums paid until 100.  I suppose ultimately my point still stands in that paying those premiums will not cost you more than you receive back.  You loss other options, like to invest the money elsewhere but that's a different argument.  This plan provides guaranteed certainty of an estate receiving X amount irrespective of life expectancy.  

Old_Lifer

Weighty1's   suggestion of a whole life policy makes sense to me.

A large Life Office will have many billions in investments and will take a long-term view.    It  will probably have a couple of hundred years experience of managing investments and will have a range of  City contacts.    It will  have a number of Departments whose sole purpose is managing those assets.         It will have some people whose job is to manage commercial property  and developements,  some who manage stock market investments worldwide,  some who manage gilts    etc... etc.    It will also have people who are looking at up and coming smaller companies.      I would expect a large Life Office to obtain a much better  and consistant  rate of long term return   than any individual  buying shares  on his home computer.

Once a whole life policy has commenced,  the whole of the sum assured  (£4m in Weighty1's example)  would  immediately become payable on death .        An individual  opening a savings account  with a gradual build-up of capital  simply does not compare  with  this.

Since a whole life policy contains an investment element,  I would not expect it to terminate immediately  should the premiums stop. Surely there would be a policy condition which would allow the cover to continue as long as there is value in the policy ?   A short break in premiums would not cause any underwriting problems as long as the  cover continues in full and does not stop.

Sandtree

They will have the advantage of having large amounts of assests to invest, almost certainly have their own investment managers so not paying a profit margin on their services and will be keen to invest in private assets.

However they also have the joys of Solvency II to follow and so what they can invest the BEL and Capital in is significantly limited, not only that but anyone in the L&P side of the fence will be ensuring that they are getting their matching adjustment to reduce their capital requirements and so that further restricts what they can invest in as the predicted investment return curve must match the predicted liabilities. Similarly under SII capital for things like Market Risk are significantly more prudent than they are say under IFRS/GAAP... hence when doing a transaction life gets complicated as you can report a SII profit but an IFRS loss etc.

Add on top of that is staffing, advertising, profits, dividends, debt servicing etc etc.

Whilst we worked the numbers on a 5% interest rate the long term rate is typically much higher, S&P500  long term rate is typically closer to 10% and thats before you buy into funds etc if you want access to similar private assets that L&P insurers are buying into.

Old_Lifer

I can  follow very little of the above but suspect that was the intention of the post.

Sandtree

Old_Lifer said:

I can  follow very little of the above but suspect that was the intention of the post.

Not at all... was intended to try and strike the balance of talking to someone who is clearly experienced but not sure how technical and not write a 5 page essay on the joys of Solvency II reserving and capital calculations

Old_Lifer

Recent  Regulation is not my area of knowledge. 

Sandtree

Old_Lifer said:

Recent  Regulation is not my area of knowledge. 

I can assure you they've not gotten any more fun!