How You Can Tailor Life Insurance

Lets talk about how you can tailor life insurance. 

Life insurance is often put across as very simple and easy to arrange and yes this is to a point true. 
A life insurance policy will pay out a sum of money in the event you pass away during the period of time you have covered yourself. 

You choose that amount of money and timeframe, answer some medical questions, get accepted, start the policy, pay the premiums (and hopefully write the policy in trust helping to reducethe chance of ineritanc tax and speed up ow quickly your loved ones get the money!).

Despite the adverts, it is beyond rare that you will find that a £5 per month policy covering you for £50,000 for the next 20 years is going to be suitable. 

I believe you MUST make sure your cover is specific to your needs.
I’ll use myself as an example to give you an idea of what we considered when arranging our life cover.**

To make sure the life insurance worked for me I tailored the following aspects. I did this by assesing my own needs through the experience I have (If you do not know where to start please speak to an adviser who can help you!)

- The amount of cover I have

- The term (how long it runs for)

- The type of cover. 
 

My first consideration was our biggest debt which like most people is our mortgage.
Do we want to clear the remaining balance off in the event one of us died OR are we going to leave the debt to our loved ones (fine to do but they may not qualify for the debt and if they can’t the mortgage company may repossess our home and sell it below market value) We didn't want to leave this debt and we had to get a policy specific to ours needs as our mortgage is unique to us  

1. We covered our full mortgage balance plus a 5% early repayment charge just in case. 
2. We covered ourselves for our remaining mortgage term
3. It was set up as a decreasing policy so the amount we are covered for goes down in line with our mortgage balance
4. It is a joint policy paying out if either of us dies and we pay a fixed monthly cost.

 

Our next consideration was our family. We've cleared the mortgage and ouroutgoings are going to be reduced BUT can our family survive on any remaining income?

For us, the answer was no and the reality without one of ours incomes was the house would probably be sold so we could downside to something more afordable. That might mean moving futher away, different schools for the kids etc. We don’t want that so we did the following;

1. We each arranged a family income benefit policy that pays our our proportion of the bills (minus the morgage payment) in the event of death
2. The policies take our youngest child up the the age of 25 (Hopefully when we feel they can be financially independent)
3. The policiies are indexed linked (rising with inflation) to help them retain their value in the future.
4. Again the monthly cost is fixed and each year my provider writes to me to let me know about any cost and benefit increase I’m expecting due to having the policy indexed linked.

 

We also asked ourselves if we wanted to go back to work the day after one fo us dies? Like us I expect you are probably thinking no.
For us we didn't like the idea of leaving it up to our employers discretion to give us some time off and we don't get death in service from our employers (Which shouldn't be relied on but that's for another blog!) So we wanted a buffer:

1. A level term indexed policy each covering up two times our basic salaries. We did this so we have peace of mind knowing if needed to we can take up to two years out of work to grieve, support the kids etc.
2. The policies run for our working lives (up to retirement).

 

We considered Funeral expenses becuase at the moment locally a cremation is about £5,500.

We've decided within out budget to not take this our right now but you have a few ways to tackle this.

- You can look at a term policy which runs for a certain period up to the maximum age of 90

- Or you can look at a whole-of-life policy which has no end date. 

You take a risk with a term policy because if you live past 90 the cover stops and you would get nothing but this type of cover costs less than a whole-of-life policy.
A whole-of-life policy has no end date and you simply pay the monthly premium every month until you make a claim. 

 

Summary 
The key things are making sure you are assessing what level of cover you need and making sure it covers you for the right time frame.

You can take as much or as little cover as you want according to your budget but please consider all of the impacts and make an informed choice. 

You should also always write your policy into trust. 

**Please note I am not covering all types of life insurance in this article or making any recommendation to anyone regarding cover they should take. You should seek your own financial advice when considering your protection.