Case Study 1: Young couple with a Repayment Mortgage

Mortgage Protection with Critical Illness gives both couples peace of mind that the mortgage would be paid off if either one of them suffered premature death or a listed critical illness.  As time passes, you will have paid more and more of your Repayment Mortgage, which will leave you with a lower outstanding balance. A decreasing term policy is most ideal in this scenario as it is a cost-effective way of providing cover that matches the reducing mortgage liability over time. Hence the couple has chosen this policy with a level of cover and term to match their outstanding mortgage.  The lump sum paid out is tax-free.

Tip: this type of policy is typically jointly owned, and on the first event of death or critical illness, the cover would cease, which could leave one couple without any cover.  If this concerns you, consider taking out two single policies.

Case Study 2: A growing family with dependent children

Level Term Insurance provides a tax-free lump sum if either couple were to pass away during the term of their policy.  The lump sum paid is the same amount (£500,000) regardless of whether they died on the first day or the last day of the policy being active.  For a growing family, the couples’ incomes are paramount to the welfare and lifestyle of their children.  Having life cover just for the mortgage is woefully inadequate protection if the family can’t afford to pay the bills or have a reasonable lifestyle.  So until they become financially independent, it will be important to retain a suitable level of life cover  to ensure that family is adequately protected.  The family has chosen the life cover amount based on 10 times their total annual salary.

Tip: for more comprehensive protection, you can consider attaching Critical Illness Cover to the Level Term Assurance, so the policy would pay out if either couple suffered a critical illness or death during the term. It’s common practice to use a multiple of between 8-12 times your salary as the life cover amount.

Case Study 3: Middle-aged couple with Buy-To-Let Mortgage (Interest-Only)

Level Term Insurance provides a tax-free lump sum if either couple were to pass away during the term of their policy.  The lump sum paid is the same amount (£300,000) regardless of whether they died on the first day or the last day of the policy being active.  In this case, it would be sufficient to cover the outstanding interest-only mortgage for their Buy-To-Let property.  This would provide the surviving spouse with rental income without worrying about mortgage payments, and would also leave a legacy to their children.

Tip: for more comprehensive protection, you can consider attaching Critical Illness Cover to the Level Term Assurance, so the policy would pay out if either couple suffered a critical illness or death during the term.

Case Study 4: Protecting the main breadwinner’s income

Income Protection provides a tax-free replacement monthly income if you are unable to work due to illness or injury.  Whether you are a single parent or a couple with a sole breadwinner, you and your family’s existing and future lifestyle depends on your income.  For example, if you cannot work, you are likely to deplete your savings and struggle to pay your mortgage payments, car loans, household bills and everyday expenses.  In this case, after the single parent’s 6-month sick pay arrangement from work has finished, her Income Protection policy would start paying £2,250 per month tax-free until she is ready to return work, or if she could never work again then up to age 65.  She has peace of mind knowing that there is income coming in so she can take time to fully recuperate, without rushing back to work.

Tip: for more comprehensive protection, you should choose an “Own Occupation” definition so that the policy will pay out if you cannot do your own occupation.  The longer the deferred period, the lower the cost for policy, and vice versa.

Disclaimer: These case studies are for generic information only and should not be construed as personal financial advice.