Case study

clock

Russ, 33, has recently left a high-paid media job. Although he has no solid position to go to, he is...

Russ, 33, has recently left a high-paid media job. Although he has no solid position to go to, he is guaranteed a number of lucrative, freelance assignments. The temporary absence from permanent employment has made him rethink his financial needs and he would like to take out some individual IP. What would you recommend for him?

Alan Lakey, principal, Highclere financial Services

Russ has sensibly identified that protecting his income is a priority. As he is newly self-employed, he will not be able to provide a net profit figure for some time therefore the choice of insurer needs to be carefully assessed. Selection, perforce, must be limited to those providers which, because his occupation is unchanged, will therefore assess any first year claim based on the previous earned income.

Russ' occupation qualifies him for an own occupation claim definition with every insurer, although excessive annual car mileage might impact on this.

If Russ has a worthwhile emergency fund he might opt for a 13 or 26-weeks deferred period, if he does not, then a four-week or even a one-week period might be preferable. Whichever route is taken, the plan should incorporate index linking.

Cost will be a factor and Russ will need to ensure that the plan is affordable and decide whether to opt for a guaranteed rate plan or a cheaper reviewable plan where the cost rises with age. If Russ' self-employment is looked at as temporary, then it is likely to be beneficial to opt for a reviewable rate plan where the initial cost is lower.

Russ may also wish to incorporate an element of critical illness or life assurance cover. This might lead to him considering a menu-based plan whereby all of the disparate requirements can be included in one place. This offers convenience although it may not prove as cost-effective as separate components.

Mark Jones, head of protection, Friends Provident

Russ would be wise to consider income protection (IP) as he may have lost his sick pay and death-in-service benefits. He now needs to seriously think about how he would survive if he were unable to work due to accidental injury or illness and whether he would qualify for Employment and Support Allowance in that event. Even if he did qualify, the benefit for those considered capable of work-related activity is only £84.50 a week. IP could offer the perfect solution.

As Russ would no longer receive any sick pay from his employer, he needs to consider how long he would be able to survive before deciding on a deferred period.

Russ should look at those IP policies that pay out if he cannot carry out his 'own occupation'. He should avoid policies that will only pay out if he were unfit to carry out any form of work.

Russ should consider plans with a guaranteed insurability option, so that if his career does take off and he needs to increase his level of cover, he can do so without further medical underwriting.

If there is the possibility that Russ will look to go back to permanent employment at some point in the future, he should also seriously consider those policies that would not require him to notify the insurer of any change in occupation after the start of the plan.

Paul Russell, director, A1 Life Insurance Services

Russ' former employer is likely to have provided a generous sickness package meaning that Russ has left behind the security of having a guaranteed income if he were unable to work. A lot of freelance workers can have trouble obtaining mainstream IP and can be subjected to a downgrade in the disability definition on the policy from 'own occupation' to 'any occupation' making it harder for him to claim. He can typically look at insuring up to 60% of his income, including dividends, and have this protected up to the age of 70 if required and, if he has no other arrangements in place, this would be recommended.

Another thing to consider is the deferred period. Russ may be restricted because of his occupation and he may struggle to obtain a low four-week deferred period without paying a high premium. If Russ intends on returning to employed work in the future, he may be able to amend his existing IP and increase his deferred period without further underwriting to bring his premiums back down. If cost is an issue, Russ may want to consider essential ability cover as an alternative. These policies will not take his income or occupation into account. The premiums may be cheaper and the same deferred periods can normally be applied although the claim criteria can be tougher and the benefit available can be lower. Budget permitting, I'd recommend a maximum index-linked benefit with as lower deferred period as possible.

More on uncategorised

Queen Elizabeth II dies after 70 years on the throne

Queen Elizabeth II dies after 70 years on the throne

1926-2022

COVER
clock 08 September 2022 • 1 min read
COVER parent company acquired by Arc

COVER parent company acquired by Arc

Backed by Eagle Tree Capital

COVER
clock 06 April 2022 • 1 min read

National insurance hike to fund social care faces accusations of 'intergenerational raid'

NICs could be raised 1 percentage point

Hannah Godfrey
clock 20 July 2021 • 2 min read

Highlights

COVER Survey: Advisers damning of protection insurer service levels

COVER Survey: Advisers damning of protection insurer service levels

"It takes longer than ever to get underwriting terms"

John Brazier
clock 12 October 2023 • 5 min read
Online reviews trump price for young people selecting life and health cover

Online reviews trump price for young people selecting life and health cover

According to latest ReMark report

John Brazier
clock 11 October 2023 • 2 min read
ABI members with staff neurodiversity policy nearly doubles

ABI members with staff neurodiversity policy nearly doubles

Women within executive teams have grown to 32%

Jaskeet Briah
clock 10 October 2023 • 3 min read