Posted December 7, 2023

A recent example of how we saved a family money on their protection each month while more than quadrupling their potential payout and giving them complete peace of mind for their young family.

Michael and Hannah
Michael and Hannah* have two children, aged 6 and 4, and have a repayment mortgage of £200,000 over a 30-year term. Hannah cares for the children primarily, and also works part time with a net income of £800/month. Michael is working full time with a net monthly income of £3,100. The clients do not have any meaningful savings, having recently built an extension on their property.

We discussed their regular monthly outgoings, which came to £2,600. Their mortgage represents £680 of that cost.

This family had previously taken professional advice and were spending £185 every month on two good quality life and critical illness policies which fully covered their mortgage. While they were certain that their household was fully protected, they came to me to sense check everything and see if they could make any saving on the monthly cost.

The shortfall
There were two things that were immediately apparent to me.

First, if either parent passed away, although there was sufficient life cover to repay the mortgage, there was no additional funds to continue to run the household, replace the lost income of the deceased parent and to raise the children to financial independence. If, for example, Michael had passed away, whilst Hannah would have been able to repay the mortgage, she would still have needed to find £1,920 every month for other outgoings. Even if she managed to continue to work, whilst caring for the children as a sole parent, she would have had a gap of £1,120 a month which with no savings would have been impossible.

In this situation Hannah would probably be forced to sell the family home and downsize, moving her young children at a time where stability would be of paramount importance.

Similarly, if Michael were to be incapacitated with a chronic (long term) critical illness, their cover would pay the mortgage off, but they would still be looking at a gap of over £13,000 a year to cover the cost of running the house and looking after the children.

Whilst these clients had received advice and were spending a meaningful sum every month to ensure that their property was protected and family looked after, there were clear gaps in their planning.

The Solution
Having spent time talking to Michael and Hannah, it was clear that their main priority was to ensure stability for their children if one of them were to pass away or be unable to work due to ill health. At a time of likely great emotional distress, ensuring that their children have the consistency of living in the same property and maintaining their same lifestyle was the most important thing to them.

We discussed stepping back from purely focussing upon their mortgage and looking at some non-mortgage linked (level term) life policies and replacing their critical illness cover with a permanent income protection policy each.

By recommending this I was able to ensure that if either client passed away, not only was the mortgage fully repaid but there was an additional £150,000 of funds available to enable them to raise the children and bring financial stability for an long time.

By putting in place a permanent income protection plan for Michael and Hannah they benefitted from the peace of mind that no matter how long they were to be unable to work, their current income levels would be maintained, and they would have sufficient monies to run the household and maintain living standards for their children. The increase in total coverage was significant, with Michael’s income protection covering a potential pay out of up to £835,000 as opposed to the £200,000 maximum claim level with his previous critical illness plan.

Not only were we able to ensure that this family’s financial plan is as robust as it could be, and close the gaps we identified, but I was able to bring their monthly cost down from £185 per month to £123 per month, saving them over £700 every year.

Barry Jones DipFA, Head of Financial Planning

Contact Barry today by email or calling 01270 620555 for a free protection review for your family.

*Names have been changed for privacy