20th August 2019

What term of life cover do I need?

The term of your life insurance is a very important factor when purchasing life insurance. However, it is something that a lot of the time is overlooked. Some advisers will recommend 25 years or 30 years with no real rationale behind that. From experience, I have found this many times when reviewing clients existing cover, when I do review a claim to cover which was set up on the internet or through a different broker, I have found that these numbers cropped up time and time again with no real substance or rationale behind them which is quite worrying fact.

The main reasons behind the term of a life insurance should be linked to a person’s debt and their family circumstances. If a client has children, I would recommend that their life insurance is taken over the term until that child or children are at an age of financial independence for example 18 or 21 years old. If either parent were to die once their children are financially independent, it normally wouldn’t affect their finances or upbringing as much if they are earning their own money. Some children who go to university for many years or further education may not be classed as financially independent until age 23 to 25 but this is always a conversation we like to have with clients to determine an appropriate and suitable age for life cover if that life cover is for the children.

If a client has a mortgage, we would design the life cover to suit their mortgage remaining term which is straightforward.

If the client has children and a mortgage, we would recommend two separate policies with two separate terms, one decreasing in line with their mortgage and one until their children are financially independent so this would be two separate policies with two separate terms. Unfortunately, in my own experience when I review life cover like this which has been sold by someone else, the life cover they have is only one policy running in line with their mortgage. There is no protection for their children. So, my question would be to them if your mortgage is paid off and your children are still dependent on you how would they maintain their standard of living if your income stopped tomorrow? Honest open questions like these will make clients understand the importance of life cover and the importance of having an appropriate and suitable term for them and their family’s situation.

You could also consider life cover until your retirement age for example, if you don’t have a mortgage or children taking life cover until your retirement would be so that your partner would still have income or a lump sum into that household as your income would be removed this would enable them to have the same quality of life and also enable them to stay in the same house and have the same hobbies etc.

If you have any form of loans such as personal loans, business loans, buy to let or investment mortgages etc, the terms remaining on these loans need to be considered also. Unfortunately, a lot of banks when they arrange a loan for you won’t ask about life insurance, they won’t emphasise the importance of life insurance either. However if you were to die when a loan was still unpaid this debt would be passed to your family therefore it makes sense to have life cover to cover this debt also so that it could be cleared upon your death so no debt would be passed to your family.

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