Life Insurance for £1m (level term) - LV or AIG

RSS20

Hi all,

I am a new member and I would really appreciate some help please.

My wife and I are taking out a life insurance for the very first time (both 43 years old and in good health)

We have seen a local IFA and decided we want to go ahead with £1m of level term cover up to age of 75 (based on 10x earnings)

The quotes have now been provided, LV and AIG are exactly the same amount.

I am unsure which of the two providers to go for, when speaking to our IFA he said it doesn't matter as they are both the same and we should just pick one.

However I would appreciate any insights someone can provide. Which of the two insurers should I select and why please? 

I am scratching my head on this one and really confused as to which way I should go!

Weighty1

Your IFA is right.  Life cover is pretty much life cover so it makes no practical difference which option you go for.

I'm more interested in why the level of cover has been recommended.  £1m of level cover to age 75 appears to be a very strange amount, I mean, I can understand potentially needing £1m of cover now but why would you need it at age 74years 364days?  And then why *wouldn't* you need it the day after?

RSS20

Hi Weighty1

Thanks for your reply.

We went to age 75, as after that alot of insurers charge quite a significant increase in premium.

The cost of our cover is £110 a month each for my wife and I. For that we each have our own cover of £1m level term upto age 75.

It means if anything happens and one of us is no longer around, there is no panic or worry looking for brand new cover or even the stress of not being able to get any cover.

We have 2 children at private school (both young at 5 and 8 years old). We just want to ensure if anything happens to either of us we can cover the cost of their school fee's plus university fee's too.

Cut along story short, the tenor of upto age 75. Is to  ensure there is no stress or trouble upto that age, if the worst was to happen from a financial aspect.

I hope my answer makes sense.

Sandtree

But you say it is 10x salary you have set it at... you are planning to work until you are 85? 

If you decide to retire at 65 why are you then comfortable with your pension income whereas if one of you dies at 66 you then need 10x working income?

Ultimately you know your own needs and demands but if you are basing it on a multiplier of income its more commonly linked to when you expect that income to be ending rather than 75.

RSS20

The figure of 10x income i.e. £1m is there to cover education for the kids and also to cover off costs related to a property portfolio we have.

Both my wife and I now work part time (couple of days a week), plus look after the property portfolio.

If the worst was to happen, this life cover would be in trust and pay out immediately (whilst exempt from IHT). So will be an immediate cash injection to sort out many different potential costs, when the stress levels are at their very highest for our family.

Weighty1

RSS20 said:

The figure of 10x income i.e. £1m is there to cover education for the kids and also to cover off costs related to a property portfolio we have.

Both my wife and I now work part time (couple of days a week), plus look after the property portfolio.

If the worst was to happen, this life cover would be in trust and pay out immediately (whilst exempt from IHT). So will be an immediate cash injection to sort out many different potential costs, when the stress levels are at their very highest for our family.

So whilst the financial need you have outlined is limited it does indicate that there are needs which will cease well before you are 75, in the case of your children's private schooling. 

You could have had a policy covering these needs as a single plan (since your children's schooling only needs to be provided for once, irrespective of whether one or both of you die) which presumably would only need to be arranged for a less than 16year term and this would therefore have been relatively cheap.  It could also have been arranged as a plan paying a monthly income to cover school costs, rather than a one of lump sum, which would've been cheaper still.

Arranging a single policy for a fixed lump sum would typically be quite a lazy way of arranging cover, which is fine if the IFA discussed alternatives such as arranging multi-benefit policies covering individual specific needs and you wished to apply for a singular, fixed payout option, but is not fine if cost mitigating alternatives were not even looked at by the IFA.

If your property portfolio is arranged via a ltd company you could arrange tax efficient cover and this may be one of the reasons it was done as a singular lump sum but nothing has been indicated to suggest this.

RSS20

Hi Weighty

Thanks for your comments.

Yes you are correct that needs do reduce by age 65, however for an extra £34 a month my wife and I can have my life cover upto age 75 rather than age 65. Bearing in mind your most likely to die aged 65-75, it seems like its worth the extra £34 a month for each of us.

The reason we decided not to go for a plan that only pays out monthly, is because if something happened and we only had 5 years of cover left. Then we would only receive 5 years worth of cash, whereas with the lump sum we are guaranteed a £1m payout throughout the tenor of the policy.

The property portfolio has not been arranged via a limited company. Its under our own personal names. I do have a limited company but only use it when i am doing a short term piece of contracting work for 6 months. Otherwise the limited company can be dormant for sometimes one or two years but of course remains fully open, so if I ever need it there is no issue.

Sandtree

As already said, its ultimately your choice however its an extra £9k on something that the odds say you will never use... if you get to 65 as a male your life expectancy is another 18.5 years in the UK according to the ONS in which case the majority will go well beyond 75.

RSS20

Yes you are right, its all a lottery like you say.

Hopefully it will be the biggest waste of money ever!

But my real question is LV or AIG?

Weighty1

RSS20 said:

Yes you are right, its all a lottery like you say.

Hopefully it will be the biggest waste of money ever!

But my real question is LV or AIG?

Flip a coin.

There is no discernible difference between the 2 providers.  Provided you are honest when completing the applications they are very much of a muchness.  There may be additional no contractual benefits included as part of the cover, such as online GP access 24/7 or access to the Best Doctors service BUT in respect of the actual life cover they are the same with both provider.

RSS20

Ok thanks Weighty1.

I am leaning towards LV, however in all honesty I have no reason why!