Family Life and Health Protection - Couple with Children

LIFE ASSURANCE FOR MAIN EARNER

General need for cover
If the main earner were to die, there would be very serious financial consequences for the family because of the very great level of dependence on his or her earnings. Life assurance is needed to provide funds on the death to cover capital needs, long term income needs and shorter term income needs. In particular, these would include the need to pay off various capital liabilities (such as the mortgage); there would also be the need to provide a long term income for the surviving partner and a shorter term income for children or other dependants.

Capital needs
There would be various capital items for which a lump sum would be needed if the main earner died. These include:


Funeral and emergency expenses
Funeral expenses can vary widely. Emergency funds are worth providing at a person's death. Cash will be needed, but their assets are often frozen after someone dies.

Specific bequests and liabilities
If the main earner has left any specific bequests, they will reduce the amount available to other members of the family. It is as well for debts and mortgages to be repaid when a borrower dies; in many cases, lenders insist on repayment and life assurance policies are often assigned to them for this purpose.

IHT - married couple
Inheritance tax does not arise where assets pass between UK domiciled spouses. However, as the assets are passing to others, there may well be an inheritance tax liability.

IHT - non-UK domiciled spouse
If a married partner is not domiciled in the UK; the result is, only the first £55,000 of assets passing to him or her are exempt from inheritance tax. In these circumstances, if you need further guidance you should seek independent legal advice before proceeding.

IHT - unmarried couple
There could be a substantial inheritance tax liability if either of you died. Although there is an inheritance tax exemption for assets which are passed between husbands and wives, there is no such provision for unmarried couples. Any assets after the first £285000 (tax year 2006 to 2007) are taxed at 40%.

Unmarried couple - It is suggested that you should each take out enough life assurance written in trust to cover this potential liability; otherwise, as an example you could be forced to sell the family home to pay the tax.

Long term income need
It would be necessary to provide a long term source of income to the surviving partner for life. The income needed for this purpose would be based on your current level of expenses, taking into account the costs that would cease if the main earner were to die.

Partners' continuing needs
The level of income needed for the long term can be calculated as follows:


Partners' continuing expenses
Partners' expenses (excluding the costs that are likely to be incurred for the children) will continue for life. A starting point is to take your current joint level of expenses, adding any extra costs that might be incurred as a result of the main earners death, for example the costs of replacing a company car. However, various cost savings would probably arise, such as mortgage payments, because the outstanding amount should be covered by life assurance. There would probably also be some reduction in outgoings that are directly associated with the main earners current level of personal expenses.

Working Partner
If a working Partner expects to continue working, and there would be a pension in retirement there will be less continuing long term income requirements. In addition, a married Partner would benefit from widow's/widower's pension benefits (current rates under allowances) as well as accumulated and future pension benefits.

Shorter term needs
Income would also be needed in the shorter term, in particular to provide for the education and maintenance of children. This income would probably not continue to be needed after they have reached their early twenties, although the period of their financial dependence may turn out to be longer, or possibly shorter.

Children's needs
The family's income required for these shorter term needs would be broadly as follows:

Short term needs - Family Income Benefit (FIB) Guidance
A family income benefit (FIB) life assurance policy can provide an appropriate cover to meet the income needs in these circumstances. Such a policy pays out a regular series of annual payments that would be free of tax over the period when the benefits are needed to cover the additional expenditure. The payments would start from the date of death and would continue until the policy had expired. (Quote Now)

Quotation
The on-line quotation will provide the full terms and conditions from all the insurance companies along with the key features document showing the provider's charges and the commission payable.

Read quotation and key features carefully
You should read the quotation and key features carefully; they contain important information about your rights and benefits under the policy.

Affordability
The premium should be readily affordable now and in the future, based on an analysis of your income and expenditure.

Commitment to maintain protection contract
It is important to remember that you will be making a long term commitment to maintaining the life assurance cover under this plan. If you cease paying premiums after a short period of time the cover will lapse. To re-establish cover will require the full quotation and application process to be completed and be subject to the then current terms and conditions. If health has deteriorated for example, cover may no longer be available or special terms may be imposed..

FIB life assurance - choice of company
Goforcustomer has conducted research using tools such as Standard and Poors , a Financial Security rating agency to ensure the suitability of each provider on the quotation menu. The quotations show the providers in order of premium.

Lump sum life assurance - general guidance
These various capital and income requirements can be covered by lump sum life assurance policies. The amount of cover needed depends on the period for which the income is required, as well as the amount of cover that has already been provided.

Lump sum cover needs
The requirements for lump sum life assurance cover are therefore as follows:


Existing life assurance cover for main earner
In calculating life assurance needs, the existing life assurance cover on the main earners life should be taken into account. The existing life cover on should be summarised as follows:



Replacement of existing cover
If you decide to replace existing cover you should make certain you have received written confirmation of being on risk with the new life assurance provider before cancelling or ceasing premiums to the existing arrangement. Once cancelled the existing arrangement may not be re-instated.

Write in trust
The life assurance policy taken out for the benefit of anyone should be written in trust, so that the proceeds of the plan are not paid into your estate, which may be subject to inheritance tax. Furthermore, provided additional trustees are appointed, the proceeds can be paid to the trustees without having to wait for a grant of probate.

Sample trust documentation for life assurance is provided (see Trusts and documentation) for each of the life assurance providers. If you are uncertain about the suitability or wording of the trust documentation you should seek independent legal advice.

LIFE ASSURANCE COVER FOR LOWER or NON EARNING PARTNER

General
Life assurance cover on the other Partners life is also very important. If the other Partner were to die, there would also be very serious consequences for the family.

• Earnings and responsibilities are very important for the family. Death would mean that the family's standard of living would drop sharply.
• Very substantial expenditure would have to be incurred for childminding and housekeeping as well as many other areas.

Capital needs
There would be various capital items for which a lump sum would be needed. These include:


Unmarried/non-UK domiciled spouse
If a married partner is not domiciled in the UK; the result is, only the first £55,000 of assets passing to him or her are exempt from inheritance tax. In these circumstances, if you need further guidance you should seek independent legal advice before proceeding

Main Earners long term needs
As the main earner is dependent on the responsibilities and earnings of the lower earner, it would be necessary to provide an income to last for life if the lower earner were to die prematurely. The income needed for this purpose would be based on your current level of expenses, taking into account the costs that would cease if the lower earner died.

Main Earners continuing needs
The income needed for the long term can be calculated as follows:



Main Earners continuing expenses
The main earners expenses (excluding the costs that are likely to be incurred for the children) will continue for life. A starting point is to take your current joint level of expenses, adding any extra costs that might be incurred as a result of the lower earners death. However, various cost savings would probably arise, such as mortgage payments, because the mortgage should be covered by life assurance. The lower earners share of the current level of living expenses would also be saved.

The main earner continuing work
The main earner would be able to continue working, although earnings would probably be reduced because of the increased family commitments. There should also be a pension in retirement.

Family's shorter term needs
In the shorter term, income would be needed mainly to provide for the children's education and maintenance. The level needed would be much the same as the amount provided on the main earners death.

This income would probably not be needed after the children have reached their early twenties, although the period of their financial dependence may turn out to be longer or possibly shorter.

Income needs
The income required for these shorter term needs would be broadly as follows:


Short term needs - Family Income Benefit (FIB) Guidance
A family income benefit (FIB) life assurance policy can provide an appropriate cover to meet the income needs in these circumstances. Such a policy pays out a regular series of annual payments that would be free of tax over the period when the benefits are needed to cover the additional expenditure. The payments would start from the date of death and would continue until the policy had expired. (Quote Now)

Quotation
The on-line quotation will provide the full terms and conditions from all the insurance companies along with the key features document showing the provider's charges and the commission payable.

Read quotation and key features carefully

You should read the quotation and key features carefully; they contain important information about your rights and benefits under the policy.

Affordability
The premium should be readily affordable now and in the future, based on an analysis of your income and expenditure.

Commitment to maintain protection contract

It is important to remember that you will be making a long term commitment to maintaining the life assurance cover under this plan. If you cease paying premiums after a short period of time the cover will lapse. To re-establish cover will require the full quotation and application process to be completed and be subject to the then current terms and conditions. If health has deteriorated for example, cover may no longer be available or special terms may be imposed It is important to remember that you will be making a long term commitment to maintaining the cover under this plan.

Family Income Benefit (FIB) life Assurance - choice of company
Goforcustomer has conducted research using tools such as Standard and Poors , a Financial Security rating agency to ensure the suitability of each provider on the quotation menu. The quotations show the providers in order of premium.

Lump sum life assurance - general recommendation
These various capital and income requirements can be covered by lump sum life assurance policies. The amount of cover needed depends on the period for which the income is required, as well as the amount of cover that has already been provided.

Lump sum cover needs
The requirements for lump sum life assurance cover are therefore as follows:



Existing life assurance cover for lower earner
In calculating life assurance needs, the existing life assurance cover on the lower earners life should be taken into account. The existing life cover should be summarised as follows:



Replacement of existing cover
If you decide to replace existing cover you should make certain you have received written confirmation of being on risk with the new life assurance provider before cancelling or ceasing premiums to the existing arrangement. Once cancelled the existing arrangement may not be re-instated.

Write in trust
The life assurance policy taken out for the benefit of anyone should be written in trust, so that the proceeds of the plan are not paid into your estate, which may be subject to inheritance tax. Furthermore, provided additional trustees are appointed, the proceeds can be paid to the trustees without having to wait for a grant of probate. Sample trust documentation for life assurance is provided (see Trusts and documentation) for each of the life assurance providers. If you are uncertain about the suitability or wording of the trust documentation you should seek independent legal advice.

GUIDANCE - TERM ASSURANCE

No savings element
There is no savings element in a term assurance policy, because it pays out only on death during the period that the plan is in force.

Periods of cover
You should take out a level term policy for a sum assured covering the short and long term needs identified above.

It is likely that the period of cover in years will be different for the short and long term needs and you should consider separate life assurance arrangements to cover these risks.

Pensions tax reforms
HMRC's pensions tax reforms has resulted in a radical overhaul of the tax treatment of pension plans which most notably sets the maximum tax-efficient lump sum death benefit initially at £1.5m. The reforms have been implemented in April 2006. Further details are contained in the appendix Pensions simplification
(Cross reference appendix 12.)

Quotation
The on-line quotation will provide the full terms and conditions from all the insurance companies along with the key features document showing the provider's charges and the commission payable.

Read quotation and key features carefully


You should read the quotation and key features carefully; they contain important information about your rights and benefits under the policy.

Affordability
The premium should be readily affordable now and in the future, based on your analysis of your income and expenditure.

INCOME PROTECTION (PHI) FOR MAIN EARNER

Need for PHI
The family would probably suffer serious financial hardship if the main earner were disabled and could no longer carry on working. The bills would still have to be paid, but there would not be enough income.

Insurance companies set the maximum amount of Income Protection benefit allowed on their policies. For an employed person this is normally a percentage of salary and can include bonuses and employer sponsored benefits such as Private Medical Insurance and the value of other perks. The combination of your P60 and P11D issued by your employer has the information about your taxable income on which the benefit is based.

If you are self-employed the earnings are your share of pre-tax profits from your trade, profession or vocation after deduction of trading expenses in the 12 months before your ability to work became affected by illness or injury.

State benefits
The state benefits paid to a person who cannot work because of sickness or disability would not be enough to meet your needs. Incapacity Benefit is taxable and it is based on a number of strict objective tests which are applied in deciding whether it can be claimed. Extra benefits, such as Income Support, are only paid if the claimant's income is very low indeed and many benefits are paid more or less at the discretion of the Department for Work and Pensions.

Income Protection - higher priority than Critical Illness Cover
If the main priority is to provide an income if the main earner fell ill from virtually any cause then Income Protection is likely to be the priority. Income Protection providers will define incapacity as "you are unable by reason of illness or injury to perform the material and substantial duties of your occupation". Some providers will extend the clause to include "any occupation". Whilst this may provide a premium saving you should consider whether this is acceptable for your requirements.

Critical illness cover just provides a lump sum on the diagnosis of certain defined serious illnesses; although this would be welcome, it does not meet the need for long term security. Careful consideration to the extent and definitions of the critical illnesses covered should be taken into account. The definitions are available as part of the documents available by requesting a quotation.

GUIDANCE - INCOME PROTECTION (PHI) FOR MAIN EARNER

Guidance
The main earner should take out an income protection plan (permanent health insurance policy) for protection against the possibility of disability.

Level of cover
The level of cover you need is denoted on the quotation, which based on your total employment remuneration is the maximum that the insurance company is able to offer.

Deferment Period
The deferment period (the period of time after the start of your illness or injury which limits your ability to work) can be set as a period of weeks on the quotation. Your choice should allow for any earnings you expect to continue after you stop working, such as sick pay, or how long you are prepared to live on your savings.

Increasing cover
The plan should provide some protection against the effects of inflation. If selected, once the benefit starts to be paid, it would rise by a percentage or recognised index such as the annual increase in the retail price index. Furthermore, the level of cover would be increased by the insurance company by the corresponding amount; the premiums would increase each year to cover the cost of this growing level of cover. This increase can be decided on the quotation request.

Tax position
If a person claims under the plan because of disablement, the benefits would not be taxed.

Quotation
The quotation facility provides a quotation with the full terms and conditions from the various companies along with the key features and key facts documents showing the provider's charges and commission's payable

Read quotation, key features and key facts carefully
You should read the quotation and key features and key facts carefully; they contain important information about your rights and benefits under the policy.

Affordability
The premium should be readily affordable now and in the future, based on your own analysis of your income and expenditure.

Commitment to maintain protection contract
It is important to remember that you will be making a long term commitment to maintaining the Permanent Health Insurance cover under this plan. If you cease paying premiums after a short period of time the cover will lapse. To re-establish cover will require the full quotation and application process to be completed and be subject to the then current terms and conditions. If health has deteriorated for example, cover may no longer be available or special terms may be imposed It is important to remember that you will be making a long term commitment to maintaining the cover under this plan.

Permanent Health Insurance - choice of company
Goforcustomer has conducted research using tools such as Standard and Poors , a Financial Security rating agency to ensure the suitability of each provider on the quotation menu. The quotations show the providers in order of premium.

The choice of Guaranteed or Reviewable premiums
The quotation will allow you to choose guaranteed or reviewable or both types of premium when inputting your details. If you choose both, an assessment can be made when you get the comparison table of quotations from the various companies.

Income Protection - guaranteed premiums
The premiums are guaranteed to remain at the same level throughout the term of the policy. If you increase the cover in the future, the cost of the additional insurance is likely to be higher.

Reviewable premiums
The insurer can review the premiums at regular terms as shown in the individual key features and facts documents. If the company has more claims than expected, they might increase premium rates, but if the claims experience improves, premiums might be reduced. The advantage of these policies is that the premium rate is generally lower than for policies where the rate is guaranteed. The drawback is that it can rise.

Income protection with no investment content
There is no investment or savings element in the policies quoted, because it only pays out on disability during the period the plan is in force.

Exclusions
Exclusions are important and are detailed in the Key Features and Key Facts documents with each individual quotation.

Own occupation
The policy should provide cover against the insured person being unable to carry on his/her own occupation. This is preferable to policies that do not generally pay out if the insured person can carry on any occupation whatsoever.

NEED FOR INCOME PROTECTION (PHI) FOR LOWER EARNER

Need for Permanent Health Insurance
If a working Partner were disabled and could no longer carry on working, there would be a major impact on the family finances. Several areas of expenditure would have to be cut back.

Need for Permanent Health Insurance - homemaker
If a non-working Partner could not continue to look after the family, considerable extra costs would have to be incurred on hiring outside professional help.

State benefits
The state benefits provided under these circumstances would certainly not be high enough to meet the family's needs.

CRITICAL ILLNESS COVER

Need for cover
A serious illness normally means that sufferers have to make radical changes to their lifestyle. Most critical illnesses do not necessarily result in immediate death. A very high proportion of the people who suffer from such illnesses as heart attack, cancer or a stroke survive them for many years.

Benefits of lump sum
A capital sum would make all the difference to the quality of life under these circumstances. The money could be used for a variety of purposes such as repaying the mortgage or other debts, paying for a special holiday, extra medical care or perhaps necessary physical changes to the home; or it could simply be used to reduce the general financial pressures.

Income
The lump sum could be used to boost your long term income if you suffered a defined serious illness. This could top up existing income protection if you felt the maximum benefit was insufficient from a Permanent Health Insurance policy.

Pension substitute
If you suffered a serious illness, you would only be able to contribute to your pension for a limited period. Part of the lump sum benefit from a critical illness policy could be invested to augment your retirement provision and replace the lost pension benefits.

Expenditure on children/school fees etc
A serious illness might make it difficult for you to afford to make adequate provision for your children. The proceeds of a critical illness policy could be used to provide for their maintenance in the years of especially heavy expenditure. A lump sum could be earmarked for school fees and or the cost of university education.

Main needs
The main needs could be as follows:



Kind of cover
Cover, often referred to as critical illness insurance, is used to provide a lump sum to a person diagnosed as having suffered any of the critical illnesses as defined under the plan, or on permanent total disablement.

Critical Illness Cover with life cover
Many providers have an option that the policy will pay the sum assured on death or critical illness whichever occurs first. The options are available with the quotation.

Illnesses covered
The illnesses covered normally include heart attack, stroke, kidney failure, almost all serious forms of cancer, multiple sclerosis, or a coronary artery bypass surgical operation or transplant of a major organ. Providers detail the extent of critical illnesses covered and any further extended options they may provide.

Income protection not enough
Income protection by itself is not necessarily enough; a capital sum could provide instant and often urgently needed benefits. In any case, even the maximum levels of income protection cover are limited to a proportion of earnings. Also, you might be well enough to return to work in the opinions of your doctor, the insurance company providing your income protection and the Department for Work and Pensions.

Not a substitute for Permanent Health Insurance
Critical illness cover should not be regarded as a substitute for the protection provided by an income protection (permanent health insurance) plan. Unlike critical illness insurance, income protection provides cover against the full range of disabilities, whatever their cause.

GUIDANCE - CRITICAL ILLNESS COVER

Quotation
The on-line quotation will provide the full terms and conditions from all the insurance companies along with the key features document showing the provider's charges and the commission payable.

Read quotation, key features and key facts documents carefully

You should read the quotation, key features and key facts documents carefully; they contain important information about your rights and benefits under the policy.

Affordability
The premium should be readily affordable now and in the future, based on your own analysis of your income and expenditure.

Critical Illness Cover - choice of company
Goforcustomer has conducted research using tools such as Standard and Poors , a Financial Security rating agency to ensure the suitability of each provider on the quotation menu. The quotations show the providers in order of premium.

Guaranteed premiums
If the premiums are guaranteed they will remain at the same level throughout the term of the policy. If you increase the cover in the future, the cost of the additional insurance is likely to be higher.

Reviewable premiums
" The insurer can review the premiums at intervals shown on the key features and key facts documents. If the company has more claims than expected, they might increase premium rates, but if the claims experience improves, premiums might be reduced. The advantage of these policies is that the premium rate is generally lower than for policies where the rate is guaranteed. The drawback is that it can rise.

MEDICAL INSURANCE COVER

GUIDANCE - MEDICAL INSURANCE FOR FAMILY

General need for cover

1. Rapid access to medical treatment
2. Choice of where, when and by whom you are treated
3. More control over your healthcare
4. Private hospital facilities
5. Reassurance that you can have access to complex or expensive treatments

If you or a member of your family falls seriously ill, you will want to take prompt action to get treatment. While we know how good the NHS can be, particularly in areas such as accident and emergency services, with growing demands on its resources there can be long delays before treatment becomes available. The thought of having to wait months for medical treatment can put untold stresses on you, your family or your business.

Read quotation and key facts carefully
You should read the quotation and key facts carefully; they contain important information about your rights and benefits under the policy.

Affordability
The premium should be readily affordable now and in the future, based on your analysis of your income and expenditure.

ASSUMPTIONS ABOUT TAX POSITION

Tax position
The assumptions about the tax position of the plans and guidance made in this overview are based on current law and HMRC which may be subject to alteration in the future.

In particular, what assets, gains or income are taxed and the levels of taxation on them are all subject to change. Tax reliefs may also change and their value to you will depend on your individual circumstances.

SUMMARY OF GUIDANCE
It is advisable to consider:

Life assurance
Both Partners should take out life assurance. If either Partner were to die, there would be serious financial consequences for the family.

Income Protection insurance
Both Partners should have income protection to replace their income in the event of illness. For a home-carer suitable cover should still be arranged under Income Protection home-carer cover

Critical Insurance Cover
Both Partners should have critical illness insurance to provide a lump sum in the event of their suffering one of the specified serious illnesses.

Family Medical Insurance
Medical insurance should be arranged for the family.