Jack and Jill are professional actors in their mid-fifties, based in London, with a variable rate mortgage of £800 a month. They work pretty regularly and do tutoring or administrative work when acting work is poor. They would like an income protection (IP) policy with a benefit of £1,500 a month but with a premium that reflects the irregularity of their earnings. What would you recommend for them?
PETER HAMILTON, ZURICH
Jack and Jill understandably want to protect their mortgage and an IP policy can help them to do this. It would be important to know how far they are already protected against the financial impact of death or a critical illness - our own plan could integrate cover for Life, CI and a level of IP.
Their occupation provides particular challenges for the IP element. It is important to understand the balance of earnings between the acting and the 'other' work. Our own contract allows actors to have an 'own occupation' definition for the first 12 months, reverting to an 'any suited' definition thereafter. This includes work for which they are suited by virtue of their education, training or experience and for example includes their administration and tutoring.
A deferred period of four weeks may be possible for actors but typically we would expect it to be at least three months. At their age, additional medical evidence is likely to be required.
It is important to avoid 'over-insuring', and so we look for evidence of earnings over the last three years and also any information available on contracts for work going forward that would support the need for a benefit of £1,500 a month. We do send annual statements for all our contracts, and for IP in particular, we emphasise the need for the customer to review the level of cover in the light of any change in earnings.
MARK JONES, FRIENDS PROVIDENT
I would recommend two individual IP policies with guaranteed rates. Assuming they earn a similar income, they should be looking for £750 benefit per month each. A 10 year term with a deferred period of 26 weeks would cost Jack £37.43 and Jill £63.20 a month with us.
They are obviously looking for flexibility, but I do not think indexation would be appropriate, as an actor's pay does not necessarily follow economic trends. They could choose a provider that includes a 'career break' option. If they decided to take a break from acting, this would allow either to revert their cover to 'houseperson's' cover for up to five years, the premium would reduce in line with their new cover. Upon return, they return to their original terms without further underwriting.
To add more flexibility, some providers will allow the customer to reduce their monthly benefit or extend deferred periods in order to reduce premiums.
Given that the couple bolster their income with other jobs, it would be wise to choose a provider that does not require notification on changes in occupation after the plan begins. As an actor, you never really know where the next job may come from, so they may want to choose a provider that allows them to work abroad temporarily
IP is a long-term solution and should be flexible in order to adapt to meet the changing circumstances of the client. So it is important to choose a plan that has the ability to remain relevant throughout the policy term.
MATT MORRIS, LIFESEARCH
Jack and Jill need to work out what their average earnings are and take out a policy that will give them an amount that matches their net income so they have enough to pay the bills and maintain their overall standard of living. It is important to check this as you are only allowed to take out cover for around 50-65% of your gross income. Assuming this figure is £1,500 per month each, then Jack and Jill have a few options.
For a male actor age 55 (non-smoker in good health) to take out cover until the age of 65 with a six month deferred period, the cost of cover would be £102.38 with Royal Liver. This covers Jack under an Own Occupation definition, which offers a good level of cover. For Jill this would cost £137.78 with Royal Liver. If these premiums are stretching their budget too far, there are other options such as looking at reviewable premiums or an 'Activities of Daily Living' definition, which would reduce the monthly cost of the policy.
In addition, they should think about taking out a life cover policy each, written in trust, to cover the mortgage if they feel the surviving partner would struggle to pay the bills if the other died. It would be interesting to find out if they have any dependants as this could affect their protection needs. CI cover is also an important policy for the couple to consider, although they seem to have their priorities right in putting Income Protection first.
