Philip and Arthur have just entered into a civil partnership and both want to ensure that the other is able to cope financially should they suffer an illness and become unable to work. They both smoke and enjoy a drink most nights but regularly go to the gym. Philip is a writer but is currently not earning, while Arthur is on £40,000 a year as an accountant. They live in a two-bedroom flat in North London, which Philip inherited from his father. What protection can you recommend for them? They can afford about £100 each.
Kevin Carr, LifeSearch
If everyone could afford (and was willing to pay) £100 each month for protection, the UK probably would not have a protection gap. Presuming there is no mortgage on the property, no other existing benefits in place and that both lives are in good health, long-term income protection (IP) is the product likely to be most suitable for both lives, which pays a tax-free replacement income in the event of ill health.
Arthur would be able to insure roughly up to the amount he receives each month in his bank, and even though Philip is not currently earning, cover is still available under the definition of 'houseperson' for up to £15,000 a year. Cover can be taken until any retirement age and can be linked to inflation.
IP for Arthur to age 55 would cost £27 a month with Friends Provident if deferred for six months. While £12,000 a year for Philip would cost £21 with LV=.
Pension term assurance aside, life cover has never been cheaper, so it would be folly not to include some cover within the budget, especially if they plan to take out a mortgage on a more expensive property in the future.
Depending on the remaining budget, critical illness (CI) cover could be taken, which would pay out in the event of diagnosis of a specified condition.
Life cover of £100,000 with £50,000 CI over 25 years would cost £57 a month with Bright Grey. All policies should be on a single life basis, which is better value for money for all couples regardless of sexuality.Rod McKie, Aegon Scottish Equitable
Philip and Arthur's main concern is to provide an income should either of them become unable to work due to an accident or illness. An income protection (IP) policy would be the most appropriate way of doing this. The priority should be to set up IP for Arthur, as he is currently the only earner.
The maximum insurable income for Arthur would be 55% of his total earnings, although, assuming they do not have a mortgage to pay they may not require maximum cover. If they set up insurance for the maximum allowed, the policy would pay a monthly income of £1,833 if Arthur was unable to work due to accident or illness. Assuming a deferred period of 26 weeks and an own occupation definition of disability this would cost £49.88 a month.
As Philip is not earning it may be that there is no need for IP for him at this stage. However, if they did want a policy in place to provide a monthly income to help maintain their standard of living, which is likely to take a hit if Philip is incapacitated, then a monthly income of £500, on an activities of daily work definition of disability, and 26-week deferred period would cost £14.08 a month.
As their budget is quite substantial, they may want to consider reducing the deferred period for increased cover and putting some cover in place in the event that either of them dies or suffers from a critical illness. A sum of £100,000 of joint life and critical illness for a 20-year term (guaranteed) would be £108.80 a month.
Chris McNab, Friends Provident
Although they have no mortgage it is important to provide protection against other debts so they should both consider income protection (IP).
Phillip should take out houseperson's cover. Although he is not currently employed, there would still be a financial impact on lifestyle if he was to suffer an illness or accidental injury. With a sum assured of £300 a week to age 65 on a 13-week deferred period, the premium would be £33.30 a month.
Arthur should also consider IP on a maximum cover basis. As he is in a profession with good prospects he is likely to get regular increases in his earnings so he should look to include an increase facility, either an inflation-proofing annual increase or exercisable increase option. With a term to normal retirement date and a 13-week deferred period, although it may be possible to extend the deferred period if the cost is a barrier to purchase the premium would be £80.17 a month for a sum assured of £461 a week to age 65, increasing by 5% each year with a 13-week deferred period.
They should consider joint life level critical illness (CI) on an accelerated basis. This will provide a cash lump sum on death or would enable them to make any required changes to their living accommodation or lifestyle should one of them suffer a critical illness. For £83.27 a month they could have an accelerated guaranteed life or earlier CI policy with £100,000 over 25 years.
