Life Cover – What Do I Need?Written on July 15, 2019 by Kirk Rice LLP
The Question:
I am married with two young children and I am worried our existing life cover isn’t sufficient. My husband and I both work and our employers offer Death in Service but I’m not sure that this will even cover the mortgage. I have no idea where to start, what our options are or how much cover we will need. Do you have any tips?
Kirk Rice LLP answers:
Unfortunately, there is no set formula to determine how much level of life cover you need as everyone’s circumstances are different. Ultimately, both you and your husband need peace of mind that if anything happened to either of you, there is enough money to cover all the things you need. For example, that the mortgage will be paid off, and the remaining spouse would have enough money to live on and provide for your children. This probably means you need to consider how much you currently spend, along with the total of debts you may have. You can then assess how much of that is covered by your employers’ schemes. From there, you can start to look at the different types of insurance that might cover this. It also needs to be affordable for you so you can sustain the monthly premiums (cover will be lost if they are not maintained).
Broadly speaking, there are two types of Life Assurance Policy to consider. The first is a Whole of Life policy which has no set expiry date. This policy will have the highest premium for any given level of sum assured (cover) but as a result it may accrue a surrender value in the future. The premiums and sum assured are normally reviewable, which means, you may have to increase the premiums in future to maintain the sum assured at the same level, or reduce the sum assured to the keep the premium the same.
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The second type of life cover policy is Term Assurance. This has a fixed term as determined by you at the outset and the longer the term the higher the premium. The premium and sum assured once accepted are normally guaranteed i.e. they will not change. Please be aware though that there are some policies which are reviewable. There are a wide range of Term Assurances available including, a Level Term Assurance where the sum assured remains the same for the duration of the policy. A Decreasing Term Assurance where the sum assured which will reduce over the term of the policy, and a Family Income Benefit Policy where the sum assured in the event of a claim is paid as a regular income rather than a lump sum.
All of the above will allow you to add further features generally for extra cost such as, Waiver of Premium which means if you are unable to work due to accident or ill health, the premium after a pre-agreed waiting period will be paid by the insurer. It is possible to have the sum assured increasing each year to help combat the effects of inflation (the premium will also increase). Most policies include Terminal Illness at no extra cost, meaning that if you are diagnosed with an illness likely to result in death within 12 months, they will pay the sum assured out early. This benefit is not normally valid in the last 18 months of the policy term.
An adviser would also ask you about the likelihood of staying with your current employer because once you leave this benefit will be lost.
You may also find the information at the Government’s Money Advice webpage useful.
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Of course, an Independent Financial Adviser will give you advice specific to your requirements to determine the type of policy, the level of cover required and how long for.
Any reader interested in discussing your life cover options can call 01344 875 000, 01252 960 500 or 0208 789 8588 or email info@kirkrice.co.uk to speak with one of our financial planners.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. The FCA does not regulate tax and trust advice.
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