How can one guarantee income in the event of incapacitation and also in the case of death in UK?

Question

I wanted a policy that protects my family in case I get injured or get ill (incapacitated) and also in case I die. They suggested a combination of Income Protection Insurance and Life Insurance.

I'm happy with the Income Protection Insurance, but as for Life Insurance, I have to set a constant lump-sum which will be paid out regardless of when I die. Instead, I would much rather have a policy where the amount will decrease as I survive longer. I.e., if I was to die at 35, I would want a large amount to be paid out, but if I was to die at 55, then my family won't need that much.

The reason I prefer such scheme is because I assume such scheme would be cheaper than conventional Life Insurance as I'm basically getting rid of excessive protection. The ideal policy would be a income guarantee scheme that covers death.

Are such policies available in UK? Also, is it correct that such scheme are generally cheaper than conventional Life Insurances that pay out a fixed lump-sum?

Answer 1

I am not sure how insurance works in the UK, but in the US term insurance policies run for a period of 10, 20 or 30 years. During that time the benefit is level and the payment is level. Even though the risk of death is not the same during the period of coverage. An issue with term insurance is that if your health is bad then it can be hard or even impossible to get a new policy at the end of the term, or if your needs change greatly to get an additional policy.

How can your needs change: expect to only have one kid, but have triplets instead. Expect to not need to support your child after college, but have a special needs child which will require support for decades longer. Have something happen to your family so that you need to raise your grandchildren.

It is hard to know if you will need less money at age 55, compared to when you are 35. I am not sure I would be comfortable with a plan that would decrease during the period of coverage. It would just increase the likelihood that I would have to purchase additional insurance to cover the new situation.