Meeting objectives – Review and improve their existing protection arrangements

Question 1

Recommend and justify a range of actions that Joshua and Amina could take in order to improve their existing protection arrangements. (25 points)

Answer 1

Rec:
* Family income benefit/joint life first death.
* In trust for family.
* Term in line with period of dependency.

Just:
* Pays ongoing income in the event of death.
* Current provision inadequate/only covers mortgage/death in service ceases if Amina leaves employment/Joshua does not have any cover.
* Outside the estate, avoids probate.
* Matches the period for which cover is needed.

Rec:
* Income protection for both.
* Deferred period six months/in line with Amina’s sick pay.
* Index linked.
* Guaranteed premiums.

Just:
* Joshua has no employer sick pay.
* Therefore protection is important.
* They have sufficient emergency fund to cope for a few months.
* Inflation protected.
* Security/budgeting.
* Multiple claims possible/insurer cannot cancel.
* Can be paid until normal retirement age.

Rec:
* Private medical cover.

Just:
* Joshua is a builder hence injury could restrict his ability to work.
* Joshua has no employer benefits.
* Quick treatment and return to work/no need to wait for NHS.
* Can select level of cover.

Rec:
Ensure nomination forms on pensions are up to date.

Just:
* Ensures death benefits are past to beneficiaries without delay in line with Joshua and Amina’s wishes.

Question 2

Outline why income protection policies may be more suitable for Joshua and Amina rather than critical illness cover in order to meet their current protection needs. (10 points)

Answer 2

• Income protection provides tax-free income/meet expenditure.
• Can be paid until retirement.
• Critical illness provides a lump sum.
• Wider range of cover (related to ability to work).
• Can claim more than once.
• Can link cover to income.
• Automatic waiver of premium.
• Benefit level can be adjusted if they change jobs.
• Deferred period to reduce premiums/match sick pay/emergency fund.
• Rehabilitation benefit/proportionate benefit.

Question 3

Recommend and justify a suitable policy to provide a regular income in the event of Joshua or Amina suffering a long-term illness and explain how this could be set up in an affordable manner. (20 points)

Answer 3

Rec:
* Income protection.
* Two separate policies.

Just:
* Pays an ongoing tax-free income.
* They are in good health/simple underwriting.
* Each gets separate cover/can claim separately.

Rec:
* Term to intended retirement age.

Just:
* Covers the remainder of their intended working lifetime.
* Multiple claims/cannot be cancelled by insurer.

Rec:
* Own occupation.

Just:
* Provides the widest level of cover/best chance of claim.
* Joshua is a builder/manual labourer/physical injury would prevent him doing his job.

Rec:
* Six month deferred period.

Just:
* Joshua has no employer sick pay.
* Amina is not mentioned as having sick pay.
* Short deferred period therefore desirable.
* Emergency fund adequate for six months/keeps costs down.

Rec:
* Guaranteed premiums/reviewable premiums.

Just:
* Known cost/budgeting/reviewable reduces cost.

Rec:
* Indexation.

Just:
* Keeps pace with inflation.

Question 4

Recommend and justify a suitable policy to provide for Joshua and Amina’s children in the event of either of their deaths. (20 points)

Answer 4

Rec:
* Family Income Benefit.

Just:
* Pays an ongoing income which allows the costs of the surviving partner and children to be covered.
* Tax-free income.
* No cover at present besides mortgage and Amina’s death-in-service/inadequate cover.
* Decreasing term/low cost.
* Option to pay via company/tax deductible premiums.

Rec:
* Joint life first death

Just:
* Provides cover in event of either death.

Rec:
Indexed

Just:
To keep pace with inflation

Rec:
Term to meet financial dependency of children.

Just:
* Protects family without incurring unnecessary costs.

Rec:
* Guaranteed premiums.

Just:
* Known cost/affordability.

Rec:
* Waiver of premium.

Just:
* Pays ongoing premiums in the event of sickness/disability.

Rec:
* In trust.

Just:
* Does not form part of the estate.
* Not subject to IHT.
* Allows for quick payout without having to wait for probate to be granted.