Sometimes it helps to see which insurances might be needed when you are able to compare your circumstances to someone else
s. For our case study we will look at Bob Smith’s potential requirements.
Bob Smith is an electrician and runs his business from home. He is 35 and married with two young children. His wife looks after the children full time so he is the main earner. Bob has a mortgage of £80000 and his personal income is £40000 per annum. At present Bob has no personal insurances.
Which Insurances Would We Recommend For Bob?
Bob’s wife and children are entirely dependant on him. They have no other form of income apart from his earnings. Naturally Bob realises that he is only human and accidents/ illnesses do occur and wouldn’t want to risk losing his home or financial security in the event of an accident or illness. Bob is open to suggestions.
Our recommendations would be:-
- Life cover and critical illness cover for £80000 for Bob and his wife
- A family income benefit policy for £15000 for 16 years on an increasing basis for Bob and his wife
- Income Protection policy for £1800 per month
Bob is the main earner so it is important that he provides and income for the family. He is particularly worried about losing his home in the event of him not being able to pay the mortgage due to accident or illness. He knows that in the event of illness he usually has around 4-8 weeks worth of outstanding invoices but after that time there would be no income. An income protection policy would solve this problem. The income protection policy pays Bob £1800 per month on a tax free basis should he be unable to work due to accident or illness for 4 weeks or more. This income continues until he is able to return to work, or his retirement age, or if he dies before the end of the policy. At least having this policy ensures that Bob is still able to pay his monthly bills such as his mortgage, and maintain his stadard of living.
If Bob or his wife died or suffered a critical illness during the term of the mortgage the outstanding mortgage debt would be paid off which again protects the family home.
The family income benefit would provide a replacement income for Bob or his wife if either of them were to die during the term of the mortgage. This policy would payout £15000 per annum increasing each year in line with inflation until the youngest child had reached 21.
Bob now feels that by having theses insurances in place he is providing for his family and need not worry about losing his home in the event of accident, illness, or death.