Life Insurance- decreasing or level term?

Nikster73

I'm hoping I can get some advice on which type of life cover to choose.

I'm unsure which policy to choose.  A decreasing policy is cheaper monthly.  I've been quoted around £40 p/m for my myself and my husband based on a level term for our mortgage amount only.  Which will always pay out the same amount.

Alternatively we opt for a decreasing policy which is around £56 per month - including £50k critical illness cover. We have 2 dependants.  

If you pay off your mortgage balance over the years, and either of you were to pass away. What then happens? 

dunstonh

You take out the policy that suits your need.  A repayment mortgage would have a decreasing term assurance.

Some people go for level term on the mortgage side to use in conjunction with their family protection to offset inflation.

If you pay off your mortgage balance over the years, and either of you were to pass away. What then happens? 

The life assurance is not linked to the mortgage.     When the life assurance pays out, the survivor can do what they like with it. 

DullGreyGuy

Nikster73 said:

I'm hoping I can get some advice on which type of life cover to choose.

I'm unsure which policy to choose.  A decreasing policy is cheaper monthly.  I've been quoted around £40 p/m for my myself and my husband based on a level term for our mortgage amount only.  Which will always pay out the same amount.

Alternatively we opt for a decreasing policy which is around £56 per month - including £50k critical illness cover. We have 2 dependants.  

If you pay off your mortgage balance over the years, and either of you were to pass away. What then happens? 

What are the rest of your plans/insurances to cover the event of death or serious illness of one or both of you? Whilst your dependents are still such or later when they are not dependent (assuming they are kids)

I'd personally also compare apples and apples... adding a modest amount of CI to one quote but not the other distorts the picture. 

Nikster73

We dunstonh said:

You take out the policy that suits your need.  A repayment mortgage would have a decreasing term assurance.

Some people go for level term on the mortgage side to use in conjunction with their family protection to offset inflation.

If you pay off your mortgage balance over the years, and either of you were to pass away. What then happens? 

The life assurance is not linked to the mortgage.     When the life assurance pays out, the survivor can do what they like with it. 

I'm still not quite sure which is best to take out - level term or decreasing.  We have a mortgage balance of £220k. Level term is much more expensive monthly.

dunstonh

I'm still not quite sure which is best to take out - level term or decreasing.  We have a mortgage balance of £220k. Level term is much more expensive monthly.

We cannot tell you which is best as that would require us to know about your circumstances and needs i.e. what other policies you have in place, such as for family protection, your pensions, savings and investments etc..  All of which can impact on what you need.

Level term (LTA) should only be a little more expensive than decreasing (DTA).  If it is a big difference, then chances are you are not quoting on a like for like basis.   e.g. the DTA is life assurance only and the LTA includes critical illness cover.    Both can be bought with or without critical illness cover and you should compare on a like-for-like basis.

Assuming you have other life assurance to cover your family needs and it is just the mortgage you need covered, then you would go with a DTA.

fullofcold

Nikster73 said:

We dunstonh said:

You take out the policy that suits your need.  A repayment mortgage would have a decreasing term assurance.

Some people go for level term on the mortgage side to use in conjunction with their family protection to offset inflation.

If you pay off your mortgage balance over the years, and either of you were to pass away. What then happens? 

The life assurance is not linked to the mortgage.     When the life assurance pays out, the survivor can do what they like with it. 

I'm still not quite sure which is best to take out - level term or decreasing.  We have a mortgage balance of £220k. Level term is much more expensive monthly.

Is your mortgage interest only or capital repayment?

Nikster73

Repayment 

Nikster73

If I were to choose a DTA with £50,000 critical illness.  Over the coming years I'm assuming the CI amount decreases also.  You would never get £50,000? 

Nikster73

We are in the process of setting up company pensions as my husband has his own business.  
We have savings, trust funds for the children, but no other family protection in place.

Nikster73

My main concerns would be - if something unfortunately was to happen to either one of us tomorrow.  Then one of us would be left with a large mortgage amount to be paid off and this might not be possible to afford every month.

If my husband was to fall unwell, this would also result in financial issues as he would not receive sick pay for being absent from work, as he has his own company.

tacpot12

Nikster73 said:

My main concerns would be - if something unfortunately was to happen to either one of us tomorrow.  Then one of us would be left with a large mortgage amount to be paid off and this might not be possible to afford every month.

If my husband was to fall unwell, this would also result in financial issues as he would not receive sick pay for being absent from work, as he has his own company.

It is this last risk that I think you need to be more concerned about. I've never been a great fan of critical illness, even though I have it. 

I always took out level term life insurance to cover my mortgage. The cost difference (on a like for like basis) was very small, and the benefit is that your spouse receives the excess over what is needed to clear the mortgage. 

To address the last risk, he really needs to get some income protection insurance in place. This IS expensive, because it potentially pays out large sums of money for a long period, but you can reduce the cost of it by restricting the amount that is paied out, and any deferred period. If you defer the payment for 12 months, it starts to become more affordable. You would need to have 12 months of living expenses saved to get you through any deferred period, but this form of insurance is essential if you want to be able to stay in your own home if he become ill and can no loner work. The benefits system in the UK will not pay you enough to keep up the mortgage payments on your home if he or you can't work.