The young get the best deal in life assurance
Q. I am 24, single and have no dependants. Is there any reason why I should take out life assurance?
A. The only reason I can think of is that life assurance premiums for young people in good health are relatively cheap, so by acting now you could lock into a cheaper rate than if you wait until you are, say, 30 or 40.
For example, a 20-year-old buying Pounds 50,000 worth of life cover up to age 60 under a competitive term assurance policy (the cheapest form of life assurance policy) will pay a monthly premium of around Pounds 7.50. The same policy for a 30-year-old will cost about Pounds 11 per month while a 40-year-old will pay Pounds 14.37 per month.
Q. My father has offered me an interest-free loan for the deposit on my first home. Are there any snags in such an arrangement?
A. From your point of view, you need to be clear what will happen if your father died before you had repaid the loan. The loan will form part of your father's estate on death and it will be the responsibility of his personal representatives to collect all of his assets. You might, therefore, find yourself having to repay the balance of the loan at short notice.
From your father's point of view, he will want to be clear how the loan will be repaid, eg by monthly installments over a five-year term, and he might also want to be protected in the event of your death, eg by your taking out a life assurance policy for the amount of the loan.
If these points are all to be recognised, then the "belt and braces" approach would be to draw up a formal loan agreement which specifies, inter alia, the amount of the loan, the method of repayment and the term of the loan. Such an agreement might also specify what is to happen in the event of the death of you andor your father and if the loan is to be immediately repayable in such an event, life assurance policies could be arranged to cover that. You might also consider offering your father a legal charge on your home by way of security.However, all this might seem to be too legalistic and you might want a much more informal arrangement, but in that case you are leaving yourselves open to some vagaries in the event of either of your deaths and if the two of you fall out .
Andrew Warwick-Thompson is a lawyer who works for Bacon and Woodrow, the international firm of actuaries and consultants. Readers wishing to put questions to him (no names will be published) should write to the Personal Finance Desk, The TES, Admiral House, 66-68 East Smithfield, London E1 9XY (fax 071-782 3200). No personal correspondence will be entered into, and no legal liability will be accepted for the advice offered.