Can we rely on ‘free’ employment benefits?
In the summer of 2018, we were approached by a client who asked us to review her existing cover.
For the purpose of this real-life account we will call her Janet. Janet told us that she was 45 years old, had two dependent children, both under the age of 11, and was a teacher. She also told us that she was in the process of getting divorced.
During our initial discussion, she confirmed that she had a Level Term Life insurance policy with a sum assured of £335,000, over a remaining term of 20 years and her monthly premium was £27.23.
She was keen to review her cover as she felt it wouldn’t offer enough protection for her children in the event of her death. She also mentioned free employment benefits of four times death in service benefit (equivalent of £104,000), as well as 6 months full sick pay.
Did she need any advice? Can she rely on employment benefits alone?
Given the level of Janet’s existing cover, which to many would seem comprehensive, it would have been logical to move the conversation onto another subject. However, in this case, our adviser Amy, decided to drill down a little further.
Amy asked her what the financial impact would be if she was off work due to illness for more than 6 months? She also asked whether she had savings in place which could help to tide the family over? Janet said she had very limited savings and was unsure how she would cope financially once her employers employment benefit of sick pay benefit ceased.
She said that she would find it very difficult to continue to pay her mortgage and bills without the support of her family and friends. In reality, even their help would be unsustainable for more than a month or two.
What are the risks that a 45 year old single woman faces?
(Information sourced using the LV= Risk Reality Calculator February 2020)
Amy explained how an Income Protection policy with a deferred period of 6 months would be an excellent way of providing some additional protection. This means that should Janet be too ill to work, her company would pay her for the first six months of illness. Then her income protection policy would begin to pay out after this.
Both Janet’s sick pay from her company and her income protection policy would dovetail, keeping her covered without any gaps. After all, it is much more likely that someone will be off work due to sickness, rather than pass away before they retire.
Amy also talked about what impact a critical illness could have on her and her family. She explained that a critical illness diagnosis wouldn’t necessarily result in her being unable to work and if she were diagnosed with Cancer for example, she may be able to continue working. This would make an income protection policy invaluable to her protection portfolio, because she would have to take time off work to undergo treatment.
Amy explained how a Critical Illness policy might offer an additional level of protection to her employee benefit. However, before producing quotes it was important to ascertain Janet’s budget, as it would be a complete waste of time to recommend a package which was unaffordable for her.
Janet confirmed that her maximum budget was approximately £80 per month.
Amy recommended a decreasing term life policy to protect her mortgage.
A level term death or earlier Critical Illness policy with a sum assured of £40,000.
An income protection policy with a 2-year claim period, which would provide a monthly benefit of £1,387 and based on a 6-month waiting period. The limited two year claim period, kept the premium lower than a full term income protection policy option which would have paid out until she got better, on expiry of the policy term, or until she retired or passed away.
Her total monthly premium was £78.65 which was within budget.
What happened next?
Wind the clock on just over a year and Amy received a phone call from Janet.
Bad news, she had been diagnosed with breast cancer and told that she was facing 10 -12 rounds of chemotherapy over the next 12 months.
We immediately helped her to submit a critical illness claim to her insurer which successfully paid out 3 weeks later.
Six months later, we also helped Janet to submit a claim under her income protection policy. The benefits from this policy have just started to pay out, just as her employer’s sick pay has ceased.
Janet still faces another 5 months of chemotherapy, but a least she can focus on her treatment and her children, without having the added concern and stress of her finances.
Whilst you are welcome to get a quote online, we would recommend you speak to one of our advisers.
Any quote that your adviser provides you with will take into account your circumstances and medical history, as well as your budget!
An online quote is just that – a quote – it isn’t a definite offer of cover. What really matters is the premium you are offered, after your application has been assessed.
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