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Life Insurance


gregavfc
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Whats everyones views on life insurance? I've recently started a new job helping people put some protection in place for their families, with one very rewarding, albeit upsetting, experience.

Interested to know how popular/unpopular it is as I'd never really thought about it until the job started.

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I've got it... but get it free through work. Can't remember the exact amount I'm insured (assured?) for but its a 6 figure amount. I think my parents are down as next of kin.

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don't most people get some form of cover automatically with mortgages though ?

Yeah but aren't they generally only to cover paying off the mortgage?

As for life assurance, it's a lottery really. You're playing the odds on how much you're going to pay in vs what you'll get back.

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I took out life assurance when I first started work in 1989, and have paid regular monthly premiums since then. Now, whenever I want to increase the sum assured (i.e. the amount paid out upon either my wife or my death), the insurance company does it with no questions asked, and only a smallish increase in monthly premium. It's comforting to know that my wife and sons will be taken care of when I cark it.

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No, i don't believe it in it all.

rather build up a decent level of savings for a rainy day.

If my wife dies, i'll probably cope financially.

If i can't, then my parents will step in and help.

If i die, then my wife will get a payout from the company i work for.

If that isn't enough, then her parents will step in & help.

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My advice (I'm not a financial adviser, and this is perhaps US centric):

Buy term and decrease the face amount of the policy as you age and the premium grows. The only exception to this is if a) the UK exempts life assurance payouts from inheritance taxes (this is true in the US) and B) you have a reasonable expectation that you'll be passing on enough assets to your heirs to make dodging inheritance tax worth it.

Whole life salespeople will often say, "but with term your premium will grow as you age, do you want to be stuck paying a huge premium just when you're most likely to make a claim?"

The first thing to consider when examining that facially correct objection to this strategy is that the reason you buy life insurance is if you have people (children and maybe a spouse) depending on your ability to provide an income for them. By the time you're in your 60s, say, your kids are in all probability on their own and not dependent on your income to any great degree and you're probably getting close to retirement if you haven't already, so the income that is lost is negligible. Unless you're using it as a tax dodge (again, assuming that it can be used as such in the UK), someone in their 60s with a life insurance policy for much more than funeral expenses is the human equivalent of a 20-year-old mass-market car (Vauxhall Cavalier, maybe?) with a massive amount of insurance for collision damage to the vehicle.

A 40 year-old for whom a good amount of life insurance is, say, 100k is unlikely to need that level of coverage in 25 years, but that's what whole life locks him into, at a far greater premium when he's 40. It's a bet that makes no sense at all.

The second thing to consider when looking at whole life is that you can build your own whole life policy, because a whole life policy is basically just your insurer buying a series of term policies and investing the difference between the premium on the whole life policy and the premium on the term policy (the insurer may be taking a risk that something that wasn't thought to increase chances of death when they wrote the policy ends up making their guess on future term premiums unreasonably low). You can implement this strategy yourself and may well beat the insurer's expected return (they tend to use rates on the low side) and get some inflation protection while having more control. If you're not disciplined enough to invest the difference between a whole-life and a term premium, though, the forced savings aspect of a whole-life policy may be worth it; a similar analysis, believe it or not, applies to the question of borrowing to buy a house vs. renting.

For most people, I suspect, you can get a level premium lower than the whole-life premium by buying as much coverage as you can get at a given premium and decreasing the coverage level as the premium increases, without overbuying insurance.

With the rise of the multi-earner household, of course, the insurable need to support a spouse declines, leaving supporting children as the major reason to have a policy.

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Make a WILL THEN especially if you have liabilities cover them with life cover.... decreasing is the cheapest for a repayment mortgage and it's not alot a month at all. Starts from about £5. Families don't always have enough to even pay for Funerals now as they cost many thousands.

If applicable WRITE life insurances into a Trust Deed! Most life offices provide them free of charge. Two of the biggest causes of death in the UK for Males in particular are road traffic accidents & suicide. BOTH events require inquests to be held, and you can't obtain a death certificate off the coroner until the inquest is over. In some cases inquests can happen months even years after a death. Life offices won't release proceeds from a policy until the death certificate is produced. If the plan is written in Trust the life office pays out within days with just a short note from the Coroner. Also if in Trust the proceeds don't form part of your estate on death, which can avoid Inheritance tax.

That's the very least you can do for your loved ones.

Having been involved in estates where the main breadwinner died intestate, without any cover for his family, I've seen first hand the problems and the heartache this can cause.

Just sit back & think...What if?

What would be the financial consequences........

If I were to die......my wife were to die? How would the other cope?

One of us got a serious life threatening illness?

One of us couldn't work due to accident or sickness, how long would we get paid by our employer?

We got made redundant?

Who would look after the kids if we both died say in a car accident? If we haven't put that in a Will then the state could decide....etc etc...

Writing a Will and getting Life cover to provide for your family does not mean you're going to die.... it just means you've been wise and planned for one of those worst case scenarios.

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No, i don't believe it in it all.

rather build up a decent level of savings for a rainy day.

If my wife dies, i'll probably cope financially.

If i can't, then my parents will step in and help.

If i die, then my wife will get a payout from the company i work for.

If that isn't enough, then her parents will step in & help.

So you do actually have some cover then... Albeit you didn't take it out personally and it's from your company.

Would you consider it if your wife didn't get a payout from your company?

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Just a thought .....

If you're lucky enough to be part of a company Trust based pension scheme then normally there will indeed be a death in service benefit

via a lump sum & an income payment to a spouse or dependent children. However normally that would be used for generating an income

to compensate for loss of a breadwinner's earnings.

If the lump sum say 4 X salary or something is used to pay off debt, then there the spouse & children may have to rely on a much reduced

spouse's pension income going forward.

It's quite possible to put in a top up insurance called Family Income Benefit, which will pay out each year an income to a beneficiary until the end of the term say until children become non dependants. This plan can be much cheaper than a large lump sum insurance policy.

It always amazes me how people will willingly cover their cars with fully comprehensive insurance every year in the hope that they don't, let alone whether they DO EVER have to claim, when legally third party cover is only necessary...yet those same people often see protection of their families as a waste of dosh if they never make a claim.

What's more important in life, your car or your family?

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No, i don't believe it in it all.

rather build up a decent level of savings for a rainy day.

If my wife dies, i'll probably cope financially.

If i can't, then my parents will step in and help.

If i die, then my wife will get a payout from the company i work for.

If that isn't enough, then her parents will step in & help.

So you do actually have some cover then... Albeit you didn't take it out personally and it's from your company.

Would you consider it if your wife didn't get a payout from your company?

good point & good question.

i'm pretty certain i wouldn't, though i might raise my level of savings to make it a bit more comfortable if i did die.

it does help though knowing that both sets of parents are willing & able to step in if required as back-up. Without that safety net, i WOULD take it out on myself dying for my wife (& kids).

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It always amazes me how people will willingly cover their cars with fully comprehensive insurance every year in the hope that they don't, let alone whether they DO EVER have to claim, when legally third party cover is only necessary...yet those same people often see protection of their families as a waste of dosh if they never make a claim.

What's more important in life, your car or your family?

i don't think thats an entirely valid comparision.

Comprehensive car insurance is purely a cost vs benefit calculation.

Will it cost me more to fix my own car when i crash than to pay the extra for comp insurance. Seeing that on average i crash every 3 years or so, its definitely worth it for me to take that insurance out.

Life insurance is a one-off. You will only claim once in your life, and it could be claimed within a year or could be claimed in 50 years time. You can't judge when you will die, like you can judge how often you will crash.

Also, there is the emotional side, there is no emotion with car insurance, its purely a financial & convenience calculation.

With the life insurance, there is emotion involved. you have to imagine what will happen when you die.

Finally, with something as big as death, family will help you/your loved ones out in an emergency like that. Thats not going to happen with a normal car accident.

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