My client, Sarah, is a 43-year-old office administrator and single mother whose daughter, Jane, has severe spina bifida.
She has to employ a carer to look after Jane while she is at work. Sarah is concerned how she and Jane would cope financially if she also became ill and was unable to work. She would like to know what options she has to safeguard their financial future.
Chris Hulme, Clayton Hulme Partnership
Jane is likely to be dependent on Sarah throughout her adult life, and her condition also presents a very real possibility that she could outlive her mother. There are two income phases for Sarah to be concerned about - pre- and post-retirement, the planning of which needs to be undertaken in the 22 years of her working life remaining.
It is unlikely that the combination of employer benefits and welfare benefits would support both Sarah and Jane in the long term.
Being in a class one occupation should bring the quickest payment and lowest cost of benefits under income protection to Sarah. Consideration of the supporting functions of policies such as own occupation, maximum benefit calculations, ceasing ages, hospitalisation benefit and ‘career break' options, is also important.
Career break, as in the Friends Provident offering, would allow Sarah to take time out of her main occupation for up to five years to provide additional care for Jane if her condition worsened whilst retaining income protection for Sarah under a housepersons definition, allowing her to revert to occupational benefit upon returning to her career.
Critical illness cover in the form of income benefit should be employed by Sarah, thus maintaining a top up of regular income to the household.
Unlike income protection, where the maximum percentage of income insured is 70%, there are no such income related limits on the monthly benefit for critical illness cover, the combined result being more robust for two dependent individuals.
Additionally, Sarah should enforce life cover to afford the level and quality of care for Jane that Sarah desires for her daughter if she is outlived.
Ian Smart, Bright Grey & Scottish Provident
Sarah's first priority should be to make sure she has adequate income protection in place so that her income is maintained should she become ill. She should choose a deferred period that ties in with whatever provision she has through her employer to avoid paying for benefits she would be unlikely to receive while her income from her employer continues.
As an office administrator she should have no difficulty in obtaining cover using an own occupation definition of incapacity. She should also consider what debts she has and whether her budget would allow for these to be covered by critical illness cover. In the event of a serious illness these can then be repaid, easing the strain on her reduced level of income from the income protection plan while she is unable to work. While Sarah has said she is concerned about what would happen if she became ill, she should also think about what would happen if she became unemployed or died.
For unemployment this would be best if it was a separate amount of cover to her income protection so that the different covers can have different benefit payment periods, typically one or two years for unemployment and until her expected retirement age for incapacity. An adequate level of life cover written under trust will allow Sarah to leave a fund for Jane's care to continue if Sarah died. This means no inheritance tax is paid on the money and providing there is an additional trustee there is someone to look after the money on Jane's behalf.
