Life Assurance - Level or Decreasing

panpan

I've been weighing up a level vs decreasing term policy and would appreciate any thoughts.

We have a mortgage of around £195K, and two small children. We have these options for around the same premium:

- Level term, £250K, will cover the mortgage and have around £50K left over for other expenses.

- Decreasing term, £500K, will cover the mortgage and have around £300K left over for other expenses.

Obviously, with the decreasing term policy, those figures will go down over time.

Our thinking is to buy the decreasing term policy, as, at the start of the policy, with two young children, the payout will be higher, and that is the time when additional money (around £300K at the start) will be more useful to use. As time goes on, and one of us was to die halfway through the policy, the children would be older and it would be easier for the remaining parent to work. As it stands today, we need one parent for childcare as they are so young.

I would appreciate any thoughts.

Sandtree

Why not buy two policies or one policy with two sections? A decreasing term aligned to the mortgage and a level term or decreasing over a different period for your other needs?

How many years salary will £50k cover if you were to die in 6 months time? Will it cover your partner until your kids are 21? Will your partners income fully support them after your kids are 21 with the current lifestyle?

Its not uncommon for people to have multiple policies/sections to cover their differing needs

panpan

Sandtree said:

Why not buy two policies or one policy with two sections? A decreasing term aligned to the mortgage and a level term or decreasing over a different period for your other needs?

How many years salary will £50k cover if you were to die in 6 months time? Will it cover your partner until your kids are 21? Will your partners income fully support them after your kids are 21 with the current lifestyle?

Its not uncommon for people to have multiple policies/sections to cover their differing needs

Thanks, multiple policies cost more than just the single policy. So I was thinking about lumping it into one policy.

£50K would not cover us if one of us was to die sooner rather than later, hence the idea of the decreasing £500K policy. At the start, it would be a large payout which would cover us, as time went on, we would need less money as the kids grow up.

dunstonh

Thanks, multiple policies cost more than just the single policy. 

The cost difference should only be due to having increased cover.   

So I was thinking about lumping it into one policy.

Having it in one policy is fine but you can have multiple segments in a single policy.

The problem you have is that you have multiple needs and having a single policy/segment (ie. one sum assured over one term) means that you are compromising.    You have a need to repay a mortgage that lasts for x years.    You need family protection that needs to exist for y years and replacing income and reduced pension that needs to exist for z years.    You are trying to shoehorn those different things into one segment/policy with one sum assured and term.      It is unlikely to work.

Taking out a policy/segment for each fo the needs matching the sum assured and term to the need is the best way to do it.  

Weighty1

As Dunstonh says, you are trying to shoehorn your needs into a specific type of policy rather than selecting the policy based on the need.

For example, does your childrens financial independence coincide with the term of your mortgage?  If not then having decreasing cover would EITHER not be ideal for the mortgage or not be ideal for protecting the family.  If you had a decreasing plan for the mortgage that is the most cost-effective way of protecting a repayment mortgage.  If you chose a family income benefit plan to provide a regular monthly income on death, until the children are no longer dependent, then that's the most cost-effective and appropriate arrangement for that need and as stated by Dunstonh and Sandtree you can arrange this via a single application simply with different segments of cover.