Level Term Life Insurance Guide Discussion

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Comments

  • dunstonh
    dunstonh Posts: 116,296 Forumite
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    B00lean wrote: »
    Hi all,

    I'm about to take out level term life assurance which would pay off a mortgage and provide income for my partner (we're not married at the moment) and son (now 10 months old) in the event of my death. I want to write this in trust to avoid inheritance tax.

    One assumes you are using multiple plans or segments and not just one policy or segment. So, you wont need to put the debt coverage in trust. No point.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • B00lean
    B00lean Posts: 3 Newbie
    dunstonh wrote: »
    One assumes you are using multiple plans or segments and not just one policy or segment. So, you wont need to put the debt coverage in trust. No point.

    Well, the only mortgage debt I have is £80k on an interest-only mortgage on a property I let. The rental income currently allows me to overpay the mortgage when costs allow and reduce the debt.

    I thought I'd just get one level term policy with enough to cover the existing mortgage debt plus extra income for the beneficiaries. If the mortgage debt reduces over the term then the beneficiaries will end up with more.

    What's the advantage of having more than one plan?
  • OshayAway
    OshayAway Posts: 715 Forumite
    The advantage of taking more than one plan is that different element can protect different financial needs.

    So you could have a plan that clears your mortgage on death, another that pays a lump sum for funeral expenses etc and another for family income benefit to keep your surviving family's lifestyle protected.

    This can mean a better 'fit' of cover and at a lower total premium.

    If you arrange this with through a broker, they can put these elements under one application to attract a plan fee discount on each element up to £3.30 each, per month.
  • Newbie2saving
    Newbie2saving Posts: 867 Forumite
    Hi all,

    I would like some thoughts please. I am looking at life insurance and I believe that whole of life is the best policy for me (I want to cover IHT for my DS). Now I do see that some policies have a fixed term of say 40/50 years and as I am in my mid 30's this seems interesting as it is <50% of the monthly cost. Knowing my luck I would live an extra yr beyond the given plan date though!

    Interested in a statement made by dunstonh on the previous page re guaranteed insurability option, which would obviously be of benefit should assets increase over my life. Is it best to ask my IFA which companies offer this?

    Any comments appreciated. Thank you.
  • magpiecottage
    magpiecottage Posts: 9,241 Forumite
    Combo Breaker First Post
    dunstonh wrote: »
    you wont need to put the debt coverage in trust. No point.
    I am going to disagree with that for two reasons.
    1. Assuming a single life and the policy is not assigned (to all intents and purposes mortgaged) to the lender then it will pay into the estate once probate has been granted. That can take some months - during which interest is likely to accrue. If its in trust it can be paid before probate is granted (possibly just a few days).
    2. Although there is a corresponding debt which cancel out when calculating the size of the estate for inheritance tax purposes, if it is in trust then normally it will not. That means the debt can instead be offset against other assets. For a single person with assets over £325K or if they are married and the joint assets are over £650K, that will mean retaining 40% of the excess (up to the value of the death benefit of the policy) that would otherwise go to the tax man.
  • dunstonh
    dunstonh Posts: 116,296 Forumite
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    edited 20 September 2012 at 10:04AM
    magpiecottage wrote: »
    I am going to disagree with that for two reasons.
    1. Assuming a single life and the policy is not assigned (to all intents and purposes mortgaged) to the lender then it will pay into the estate once probate has been granted. That can take some months - during which interest is likely to accrue. If its in trust it can be paid before probate is granted (possibly just a few days).
    2. Although there is a corresponding debt which cancel out when calculating the size of the estate for inheritance tax purposes, if it is in trust then normally it will not. That means the debt can instead be offset against other assets. For a single person with assets over £325K or if they are married and the joint assets are over £650K, that will mean retaining 40% of the excess (up to the value of the death benefit of the policy) that would otherwise go to the tax man.

    I was working on the basis of joint life where there would be no delay as it is paid directly to the surviving owner.

    There is no 100% rule on most areas of financial advice. Remember the FSA trials of flow chart advice that only gave the correct outcome in 3 out of 4 cases (worse in some cases)
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • magpiecottage
    magpiecottage Posts: 9,241 Forumite
    Combo Breaker First Post
    dunstonh wrote: »
    There is no 100% rule on most areas of financial advice. Remember the FSA trials of flow chart advice that only gave the correct outcome in 3 out of 4 cases (worse in some cases)

    Absolutely

    That is why going to an IFA is likely to be money well spent.

    In fact, since they will probably source a cheaper product than a bank, it is money well not spent!
  • moneyskip
    moneyskip Posts: 5 Forumite
    dunstonh wrote: »
    are you aware that the self employed get a lower state pension? The amount lost would require around £120,000 in a pension pot to compensate.

    Sorry Dunstonh, lower state pension?
  • dunstonh
    dunstonh Posts: 116,296 Forumite
    Name Dropper First Anniversary First Post Combo Breaker
    moneyskip wrote: »
    Sorry Dunstonh, lower state pension?

    The state pension is made up of the basic state pension and the additional state pensions. The additional are graduated pension, SERPS and S2P (state second pension). Graduated is long gone but those already retired or getting close may have a small bit of graduated. S2P replaced SERPS in name and the way it is calculated but the principle was the same.

    The self employed pay class 2 NI. Class 2 does not qualify you for SERPS or S2P. You only qualify for the basic. An employed person pays class 1 and class 1 qualifies you for the basic and S2P/SERPS. S2P/SERPs for someone starting out their working life now can be worth around £3500 a year. There are some who have received over £8000 a year. So, that is what a self employed person is losing out on. To put it into pension fund terms (i.e. how much would you need in retirement in todays terms if you were replacing that S2P/SERPs), you would need a pension fund of around £100,000 to £120,000. So, any self employed person who has a pension put at retirement of less than that has effectively gone backwards in their retirement provision.

    If you have a self employed person and employed person both earning the same amount (say £24,000 a year) then the employed person will get a higher state pension than the self employed person.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • creationuk
    creationuk Posts: 2 Newbie
    Hi all,

    I was wondering if i could get some help regarding life insurance for myself and my wife.

    i am 25 and my wife is 23. We have a son who is 4 years old and have been considering for quite some time life insurance. i have done some quotes online as follows:

    Level term - £250k - 40 years - £9.50 (average for both)
    Level term - £250k - 60 years - £20.00 (average for both)
    Whole of life - £250k - £40.00 (average for both)

    we currently have no outstanding debts and we rent from a housing association. We are struggling as to whether we should get level term or whole of life, and if we go for level term whether it should be 40 or 60 years.

    Would it be advisable to go for the 40 year level term policy for price and towards the end of the policy or half way through (say 20 years) take out another cheaper policy to run concurrent. i feel the whole of life is quite expensive and doing it by going level term and taking out another policy may work out cheaper in the long term. However, one can never assure the prices of life assurance will be cheaper than they are now.

    Can i get some help and advice please?

    Thank You in advance!!!
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