There’s a few different ways to skin an insurance cat. Family’s typically have a few life insurance needs. Meet the Jones family.
Married (both 40) two children (10, 8) household income of £60k after tax. £200k interest only mortgage with 20 years to go. They’re looking to rertire at 60 and have a plan in place to achieve that.
Here’s the insurance they could put in place…
Cover the mortgage
A joint policy with a sum assured £200,000 for 20 years. Written in this way if either partner were to die the policy would pay out and then cease.
Replace lost income
If either Mr or Mrs Jones were to die the survivor would lose their spouses net income from the date of death to age 60 (the intended retirement age). This could not only impact their standard of living and planned expenditure (holidays, university, etc.) but also their retirement plans. They have a plan in place that will enable them to retire at 60.
They could use a joint family income benefit policy to pay out £4,000 per month until the survivor is 60. This will ensure all their financial planning goals remain achievable. Irrespective of who dies, the survivor income or expenditure would need to change. If Mrs Jones passes away then Mr Jones may need to work less whilst the children are in school. School drop-off, collection, holidays may impact his ability to maintain regular office hours a. He might decide to get childcare and help around the house but this will come at an additional cost. That’s why I feel it’s best to replace both net incomes when setting up family income benefit.
Additional lump sum
Two separate single life policies with a sum assured for £100,000 for 20 years for both Mr Jones and Mrs Jones. This means that if one of them dies there’s a £100k lump sum that can be used to ease the pain of the transition to the single parent family. The survivor’s policy is still in place so is available as a benefit for the children if the surviving partner were also to die.
So if anything were to happen Mr Jones (for example). There would be a payout of £200,000 to clear the mortgage. There would also be a payout of £100,000 as a lump sum to help with the transition to being a single parent family (Mrs Jones’ £100,000 policy would still be in force and pay out if as nothing were to happen to her within the term). The family would receive £4,000 per month to replace their lost incomes - Mrs Jones could decide to stop work to help the children cope with the loss of their father. She can still afford to do all the things that they had planned to do with the children and retire at 60.