Level Term Assurance Cost Cutting/MoneySavingExpert.com Discussion

dunstonh

Should we go for Term Assurance (to cover reducing mortgage payments I think if either dies - our IFA quoted £15-£20for this per month just last night) or the other type of assurance that pays a lump sum? Martin's book seems to lean for this one if it's only a few quid more per month

I suggest you have another word with your IFA and ask them to explain the options again. Are you looking at pension term assurance, level term assurance, decreasing term assurance or family income benefit? Your comments could indicate any of those.

EagerLearner

Hi Dunstonh - our IFA knows our situation - ie: we have no children, we're FTB with a 2 year fixed mortgage on £112,500, both working full time - and he recommended decreasing term assurance @ £15-£20 per month to cover the remaining mortgage if either of us dies.

He did not discuss any of the other terms you mention and I'm sorry to say I don't really know how they all differ... I will have another word with him, but any guidance you can give me beforehand would be much appreciated - if you need any additional info ask away ;o)

Thank you

EagerLearner

dunstonh

Decreasing term assurance is the product suitable for a repayment mortgage. Pension term assurance could be an option due to the tax relief on the premiums making it cheaper than level term and some decreasing term policies.

Family income benefit and level term assurance are more for family protection or fixed value liabilities.

matbeard

Now that life assurance premiums can be paid tax-free, will there be any chance of applying this to existing policies, or will it involve taking out a new one to get the benefits?

dunstonh

matbeard wrote:

Now that life assurance premiums can be paid tax-free, will there be any chance of applying this to existing policies, or will it involve taking out a new one to get the benefits?

It is not possible to reclassify an existing term assurance under pension term assurance rules.

Pension Term assurance is in trust whereas a level term/decreasing term may not be. There are also issues regarding primary and enhanced protection and contribution rates. So automatic conversion could create issues for a minority.

It appears that many of the providers are now looking at launching their pension term assurance in May. Its a bit weird at the moment as some providers currently have no pension product (NU for example). Its a bit like sitting in limbo waiting for things to happen.

rossbenn

eilz wrote:

Thanks dunstonh

Thanks, but I definately dont have an endowment policy, it is a Life Assurance policy, which If cancelled I would get a very small percentage back of what I paid in, unless I leave it till am gone. So switching over in April, I would lose out on the payments made since I opened the policy, only getting a small amount back.

It would appear that you have a Whole Of Life policy. This means what it says and will not pay out until you die as long as you keep up the premiums. There may however be a small surrender value after some years but do not make the mistake of thinking of it is a savings plan. That is not the purpose it was intended for.
One drawback on this once popular plan is that normaly the insurance co reviews the premium after ten years and every five years thereafter until
age 74 when it is reviewed every year and may possibly increase the premiums.
These reviews differ from company to company and it can work out to be expensive as you get older, however once you are on risk they can not take the cover away. This can be important if you go to buy Life Assurance when you are 60+. This plan is normally used for inheritance tax planning written in joint names in trust and paying out on the second person to die.

rossbenn

dunstonh wrote:

Its a common "simple" method used by some tied salesforces to decide what they think is the right figure. It's basically a rule of thumb used by them. It isnt designed to be accurate. That's what a proper analysis is for. However, it is designed to be quick.

Personally, I work on the 5% rule instead. i.e. If £10k pa. is required as replacement income, then £200k is required as a lump sum paymen (200 @5% = 10k net).



widows pension does not pay until retirement any more. Also occupational pensions scheme payments are based on length of service or amount in there at point of death.

I agree that the 10% rule is old hat. It is impossible to work out an exact figure for the amount of assurance someone may need but you can be a bit more precise than 10%.
If you take a bread winner for instance who earns net £3000 per month or £36,000 p.a. Subtract what will not have to be paid every month if they die.
e.g. mortgage £1,500. life assurance premiums £50 p.m. you can make ajustments for clothes,food entertaining, say £300 p.m. This list is not exhaustive.
So if the outgoings saved are £1,850 p.m. that leaves £1,150 that has to be replaced on an ongoing base( not forgetting inflation).
If you divide the £1,150 by 5%(on the basis that you will be able to get 5% return on your investment) that means the bread winner needs £276,000 of assurance. Of course from that figure you deduct any death in service benefits, life assurance and pension that may be available.
I think the message is to leave your loved ones in the same financial security as existed when you were alive and providing for them accordingly.
It is no good just covering the mortgage, the same bills come in month after month and have to be paid. If someone works for 40 years earning an average of £30,000 p.a. that amounts to £1,200,000. If you owned a painting worth that would you insure it?

Caz2_2

Hi sorry if this is in the wrong place. Having read Martin's article on life assurance I have spent all day looking for the best deal. I just wanted to say that i found what i was looking for at www.life-insurance-online.com. Their's was the best quote and I decided to set it up over the phone. Martin seemed to have reservations about this and so did I, but I needed it today as my previous policy ran out today. The service I got was great it took 15 mins and she knocked me more money off whilst on the phone.There was no confusion or charge for advise. Here is what I got 50 yr male, non smoker, fixed term of 19yrs, insured for £200,000 cost £41.41 monthly with legal and general. Set up fee £35. I was very impressed and just wanted to pass this on. Before any one asks no i do not work for them I had not heard of them before today. Hope this helps someone. PS Tesco was £68 if i could be bothered I would tell them and claim £1000 club card points!:j

dunstonh

That website you linked just seems to be one of these portal sites with links to anything with the name life assurance on it. Its not a broker/IFA. Its a site that is trying to generate traffic in an attempt to sell the domain.

You didnt do your business with them. You did it with one of the many companies they link to.

Caz2_2

Hi is that good or bad then, i cant work out what you are saying. I didnt think it mattered if i got a good deal especially when Martins advice worked to save me money. You got me worried now.