Most people take out life insurance with their mortgage. However, as John and Lucy’s story demonstrates, it is important to review it regularly as you progress through life to make sure that the amount of cover matches the family’s needs.
John, an engineer in his mid-fifties, worked for a major infrastructure provider. He was the main bread-winner, as his wife Lucy combined part-time work in retail with bringing up their son Nathan.
Nathan was in his second year of studying medicine. John and Lucy were keen to be able to continue funding him for the remainder of his four-year course and ideally carry on helping when he becomes a junior doctor. They had another ten years to go before their mortgage would be paid off.
Lucy would be unable to manage financially
John decided to increase his life insurance cover, which he originally took out with his mortgage, combining it with critical illness cover. He was concerned that, should he fall seriously ill or die before he retired, any lump sum death benefits Lucy would receive from his defined benefits pension would not be enough for her to pay off the mortgage and have enough left to live on. Despite passing a medical examination with a clean bill of health, two years later John collapsed at home shortly after, sadly dying at the age of 57 from a heart attack. Lucy claimed on John’s life insurance policy and received a payout of more than £265,000. She also received a lump sum death benefit from John’s pension scheme and a one-off bereavement payment of £2,000 from the state. However, it was the substantial life insurance payout that meant she could manage financially, especially as she took time off work following John’s death.
Lucy and Nathan free from financial worries
Lucy used the money to pay off the mortgage and, with the help of a financial adviser, invested the remainder with the aim of supplementing her own income. The additional income it generated meant that not only did she have enough to cover regular bills plus a little to spare, but she could also continue to pay for Nathan’s studies.
The value of your investments and the income from them can go down as well as up, so you could get back less than you invested.