Sarah, 32, and her husband Mark, 34, live in London. They have two daughters, Lisa and Becky, aged four and two. Sarah is a primary school teacher and Mark is a train driver. Their combined salary is £55,000. They do not have any kind of insurance, but after recently buying their first house, they know they need some form of protection. Their budget is tight as their monthly mortgage repayments are £1,000 a month. At most, they can afford £50 a month. What recommendations can you make?
Penny O'Nions, The Onion Group
Sarah and Mark have responsibilities in the form of debt and dependants.
These should be covered by a comprehensive protection portfolio as few new home owners could support a mortgage on their own - but this couple are constrained by the cost of two small children and a budget of £50 for insurance.
This means the package chosen will have to be from a company offering menu-based benefits and will ultimately be a compromise, so it is important to dovetail (not overlap) the benefits offered by their respective employers.
In general, teachers and train drivers can expect to receive six months' full pay and six months' half pay, plus a multiple of salary as death in service benefit.
In additional to this, should an employee suffer a non-fatal injury at work, there is usually a compensation protocol, which could provide a lump sum.
A problem would arise should Sarah or Mark resign or be sacked as a result of an inorganic condition such as depression, ME, bullying or any psychological or psychosomatic conditions as they are unlikely to receive any compensation from their work and nothing from any insurance policy. Depression is rife among teachers and train drivers.
To dovetail with their employee benefits and keep within the £50 budget, we suggest income replacement with 12 months deferred period and a joint life level term or earlier critical illness (CI).
We have not included accident, sickness and unemployment cover as, although cover is cheap, the benefit is only paid for 12 to 24 months whereas this family needs to know they are covered until the children are independent.
Protection products should be reviewed for suitability at regular intervals.
Bright Grey and AXA PPP healthcare were both able to provide the cover we requested for the £50 figure stipulated.
Sue Wilkinson, Scottish Provident
As Mark and Sarah's house has only just been purchased with a monthly repayment of £1,000, let's assume their mortgage is approximately £160,000 with a term of 25 years.
It is imperative that, given there are two very young dependants, high mortgage repayments and a combined salary of £55,000, there should be a continuous source of income for this purpose together with a lump sum to pay the mortgage off in its entirety.
There should also be an income for the children in the event of the death of either or both parents, written in trust.
Although £50 is a fairly tight family budget, using a combination of benefits from the Scottish Provident menu and therefore enabling multi-benefit discounts allows all the most vulnerable areas to be covered.
The fact that benefits can be added and taken away as the families circumstances change is vitally important.
For a total premium of £50.55 we are able to provide a continuing income to the children and lump sum cover to pay off the mortgage if either or both parents die, and cover for the mortgage and some household expenses if Mark or Sarah is off work due to illness.
For added interest, we decided to run this same scenario through Direct Life's new Intelligent Protection software.
Amazingly, the results were the same as our carefully thought through scenario, but also included a detailed letter to the clients, a list of what extra benefits are available, and a complete breakdown of costs.
Roger Edwards, Bright Grey
With such a young family and a sizeable mortgage of up to £150,000 (based on their monthly outgoing) Sarah and Mark need to put in place as comprehensive a protection package as their budget will allow.
While they will not be able to afford the ideal holistic solution, they should be able to set up a plan that provides a firm foundation to add more comprehensive CI insurance and income protection (IP) later.
Their priorities should be debt repayment and income replacement, ideally if either of them dies or is unable to work.
Using a Bright Grey Menu product they could repay the outstanding amount of the mortgage if either of them dies for a cost of £12.08 per month over 25 years.
While CI cover for the mortgage along with IP to replace their income if they couldn't work would be ideal, this would exceed their budget considerably.
Family income benefit, however, paid if they died or had a critical illness could provide an income of £28,800 a year for the same period for £14.59 a month.
In order to give them additional protection until their budget allows more comprehensive cover they could each add £25,000 of critical illness cover for an extra £17.11.
With a plan fee this package would cost £50.53 in total.
