Mr Brown wants to provide financial security for his wife (who is not working) and his two young children.
He wants the cover to continue until the children have become independent, so wants a policy to run for 15 years.
The lump sum has to provide a reasonable income for them to supplement the modest State benefits (the widow's benefit plus child allowances) they would receive, and he reckons a sum of £220,000 would be needed. At his age of 33, this amount of cover over 15 years will cost £238 per annum gross, reduced to £231.35 by tax relief at 17.5%.
The important factor in protection planning is the concentration on income requirements, not the apparently large capital sums provided by the policy.
If money can be invested to yield, say, 10% before tax, then a sum of £220,000 will produce an annual income of £22,000, but this will be subject to income tax.
If the dependants have no other income, the amount of tax paid will depend on the personal allowances they can claim; in Example 1 around £2300 of tax would be payable. This would leave a net income of approximately £234 a week - not an excessive figure given today's cost of living.
Clearly if the wife is also contributing to earnings this must be taken into account.
Here each partner should ideally be insured for a sum sufficient to produce at least the equivalent of their net earnings, since apart from the regular outgoings that will need to be covered, there will also be extra costs of domestic help with young children.
As we shall see, there are policies more suitable for this purpose than level term by itself.
Level term assurance may be useful in many........ see: read next:for Term Assurance Example 2
Our insurance website is an independent marketing website which acts as an introducer to 'whole of market' companies who offer specialist Independent Financial Advice. Each company is authorised and regulated by the Financial Services Authority.
We are not authorised to give advice and we are not liable for any financial advice provided by, or obtained through a third party. The information published on this website is for information purposes only. This site has been approved for compliance purposes by a Firm of Independent Financial Advisors who are authorised and regulated by the Financial Services Authority (FSA). The Chartered Insurance Institute
To contact us, send an email and we will get back to you as soon as we are able. If you are looking for independent life insurance quotations then click here. If you are looking for any of the folliowing: Car insurance
Bike insurance, Travel insurance, Home insurance, Life insurance, Landlord insurance, Pet insurance, Medical insurance, Dental insurance, Business insurance please click here
Have something to say?
We publish financial articles on this site if they fulfil our requirments. more>>