Mr and Mrs Davies are both aged 32 and married with three children; Annie aged 3, Jessica age 5 and Louisa age 8. They both earn good salaries but their regular expenditure is almost as high, leaving them with very little surplus income each month.
Our client’s needs
Mr and Mrs Davies want to ensure that their family will be financially secure in the event of their untimely deaths. They do not currently have any life protection in place, although their employers do provide them with income protection if they are off work for up to 2 years due to illness.
In the event of either of their deaths, CST forecast that their current savings would more than likely be depleted within 2 years, if they did not have any other way of replacing the lost income. Furthermore, this would leave them with no emergency savings.
Their mortgage is on a repayment basis and has 23 years remaining on the term. The liability currently stands at £180,000.
We calculated the level of cover required and made recommendations:
- Decreasing Term Assurance arranged on a joint life, first death basis for a 23 year term to ensure the mortgage loan would be repaid in full. At a cost of £11.58 per month, this would reduce the regular expenditure significantly if one of them were to die.
- A Family Income Benefit plan taken out on a joint life basis that would pay a tax free monthly income to the surviving spouse until the end of the term. We recommended this was taken out over an 18 year term to coincide with all their children leaving education, at which point the family expenditure is likely to decrease significantly. The premium for this policy was £22.64 per month.
- Income Protection Insurance was recommended, in case either Mr or Mrs Davies were unable to work, due to long term illness. However, they felt that their current employers’ provision was adequate to meet this need.
The family are protected with sufficient cover so that, if the death occurred, they can still achieve their goals, as they would not have a mortgage to repay and would also receive a regular tax-free monthly income whilst the children are growing up. It also means that they are not spending excessive amounts on protection, allowing them to use their spare money for other purposes.