Caitlin, 25, has recently inherited £15,000. She wants to buy a house with her boyfriend Danny, 28, but as they hope to go travelling they are renting for a year. Caitlin works for a television company and earns £27,500. Danny is a dentist and earns £45,000. Caitlin is aware that she should still protect herself in case of ill health so that she can meet her monthly rent payments of £850 and student loan repayments of £100 a month. Although her mother died of breast cancer at 46, Caitlin is in good health. Danny is asthmatic but has not had an attack since he was 18. What options are available to them?
Peter Chadborn, Chadborn Baker & Kearle If Caitlin is happy to commit her inheritance to a joint purchase and does not wish to repay her student loan, then the priority for her and Danny is income protection (IP).
Based upon the uncertainty of their travelling plans, the key consideration is policies with considerable flexibility including the option for career breaks, worldwide cover and the ability to adapt to future occupations.
For their specific circumstances, I would recommend IP from Progress from Royal Liver.
This IP policy has the option of a two-year career break, where the occupation reverts to house persons' definition, with a maximum benefit of £15,000 per year.
In addition, the policy includes lifestyle support benefit, which pays a lump sum of three times the monthly income benefit if three out of nine activities of daily work are failed.
Assuming that neither Caitlin or Danny's employers provide sick pay benefit, then the cover should have a deferred period set to match their ability to manage without an income.
A 13-week deferred period, with the minimum required monthly benefit for Caitlin of £950, would cost £29.
23 per month.
The same basis for Danny with a monthly benefit of £1,250 would cost £54.
73 per month.
Ideally, Danny should have higher cover, but setting the benefit at this level would mean it could remain constant and affordable should they utilise the career break option, but should be reviewed if they do not.
Unfortunately there are some health issues, which means that Caitlin is likely to have a significant loading to her premium.
However, as Danny has been symptom free for over two years, his policy is not going to be affected.
Ian Noble, Lincoln Financial Group From the information provided, Lincoln's Financial Foundations whole of life policy could provide for Caitlin and Danny's protection needs.
The inherent guaranteed insurability would re-assure Caitlin too.
Their protection needs could be fairly met with one plan providing £30,000 life cover (joint life first death) while they are mortgagefree, plus free-standing critical illness (CI) cover of £30,000 for Caitlin and £50,000 for Danny, and IP benefit of £950 a month for Caitlin and £1,200 a month for Danny.
The IP waiting period would be three months, with an expiry age of 65, and with the recommendation of a supporting savings account with three months salary as a safety net.
This includes RPI indexing on all benefits.
By targeting the period of cover to 40 years, the anticipated premium would be £145.
72 a month, including waiver of premium to age 65.
This premium would be guaranteed for 10 years, but expected to remain unchanged for the 40, apart from the RPI indexation.
If a minimum premium cover were appropriate, this would be £60.
43 a month.
The cover could later be extended if required.
In terms of underwriting, it is assumed that Caitlin is occupation class one for the IP, and Danny, class three.
Both would enjoy 'own occupation' definitions, with Danny – class three – reverting to 'any occupation' only two years after a claim.
Danny's childhood asthma would be ignored.
Caitlin's family history could provoke a 50% loading on her CI cover only – although if she were able to provide evidence that she carried no relevant inher itable genes, this could also be ignored.
Dr Helen Collins, Liverpool Victoria Caitlin has additional outgoings in the form of £100 per month for a student loan.
It is unclear how much is actually outstanding, but she could consider repaying all or part of the loan even though the interest rate paid is currently quite low, at approximately 3% per year.
She must recognise however that by repaying the loan it may affect her travelling plans but she would have an additional £100 per month that she could release for her protection or savings needs.
Caitlin wishes to travel in a year's time and needs to consider how long for and how much it is likely to cost.
In the interim, they should consider investing around 75% of the money in a high interest account, with the remainder in an instant access account.
If they wish to purchase a property in the near future they will need to consider how this will affect their plans to travel.
Caitlin should also consider protecting around 50% of her income through an IP policy in a flexible protection plan.
This means that as her life changes she can amend her policy as appropriate.
Many IP plans have a minimum premium of around £5 per month.
In view of Caitlin's family history, she should also consider CI as an option, if not now, then in the future.
Danny can also take out an IP policy to protect around 50% of his income, but must ensure that he discloses his asthmatic condition.
Once again, as for Caitlin, a flexible protection plan means that he will be able to amend his policy, and add other types of protection as their needs change.
