When we look at a client’s financial situation, one of the most common problems we see is that they have had many income protection and life insurance policies sold over the years.
It is important to note that such coverage for a couple with a mortgage and a family, like a couple, is essential. It’s better to have “a little too much” coverage than to have serious financial problems in the event of an emergency.
It’s fair to say, however, that you wouldn’t be content paying a lot for protection year after year if you didn’t need it.
This is often the case for clients over 45/50. In almost all cases we can think of, there are multiple things that could make the protection in question.
These are the top three:
- The policy isn’t the best value.
- The client was already overinsured at the beginning
- Matters have not been reviewed in many years.
- The shortfall calculation did not include NHS benefits.
The first three are obvious, but let’s take a look at the fourth. It might be a good idea to examine a few examples of doctor consultants. Both cases assume that the couple is married with two children and has a mortgage.
This article focuses on income protection and life cover. The figures used are only for illustration purposes.
Term Assurance (TA), lump-sum life insurance that covers a set number of years.
Family Income Benefit (FIB), a monthly income protection for a specified number of years.
Permanent Health Insurance (PHI), a monthly, tax-free, income replacement that typically lasts until age 60.
These benefits are provided automatically by the NHS depending on your superannuable income and service length. These benefits will be even more generous if you have added years.
David, age 40
His current salary is PS100k per annum. He has been in the NHS for 16 years. They are both aged 8 and 10 and will likely go to university. The debt is high and consumes a lot of the monthly budget.
David was sold life policies and a PHI plan. The total cost of the plans, which cost PS100 per month, was inflated. David can’t recall if he was ever advised about the NHS benefits that he already has.
What kind of NHS coverage would David get? This is the minimum that he would receive from NHS if he were declared long-term incapacitated, or even dies. This is Tier 1 benefits being used for the calculation.
Lump Sum on death – PS200,000
Death income – PS20,000 pa
Income for life incapacity – PS20,000 pa
These are large amounts of money. Once we know what David needs, savings can sometimes be made.
Tom is 50 years old
Tom has 26 years of service in the NHS. He has a salary of PS110,000 per year and some discretionary points. The mortgage is much lower now that the children, aged 20 and 22, are nearing graduation. His protection needs have not changed in 5 years. He is currently paying PS140 per month for his protection policies.
Tom’s NHS benefits include:
Lump Sum on death – PS220,000
Death income – PS35.750 pa
Income for life incapacity – PS35.750 pa
These benefits are greater, but Tom’s protection requirements are decreasing. These policies were purchased years ago and are easy to overlook that they no longer meet Tom’s needs.
It is likely that results for GMPs or GDPs will be similar.
Some policies are designed to end at the current time. Others go on for years. This type of situation is where you can often save a lot.
You can use either a traditional or fee-based financial advisor (or do it yourself), but you will need to calculate the shortfall and include all current coverage, including NHS benefits.
These are some other tips:
- It is cheaper to have life insurance EACH than jointly. This also doubles your coverage as a couple. The survivor will also have their own policy.
- If you’re looking for life and critical illness insurance, make sure to compare plans that combine them as they can often be more cost-effective.
- To help you with Inheritance Tax Planning, ensure that any life insurance is written in trust
- Review your Wills if you have them. If you don’t have Wills, take immediate action.
- It makes good sense to have Lasting Powers of Attorney
Don’t forget to save your PS1 on policies that you don’t use. This can be used for what you actually need.
Financial Tips Bottom Line
It is important to know the following:
- What your family and you will need in case of disaster
- What you have currently, including NHS benefits. You can ask them for your N.I. if you’re not sure what your NHS benefits are. Number and date of your birth.