Building contractor, Scott
Scott runs a building company with his business partner Andrew. Scott’s skills lay in the construction side, Andrew’s in the planning and consultancy side.
Andrew suffered a motor-cycle accident and was unable to work for 6 months.
The problem
Andrew has recovered and since returned to work, but it has left the pair of them shaken and concerned. Andrew’s work was contracted out, resulting in significant costs to the company. A senior member of Andrew's team left during this period as a result of the uncertainty.
Andrew continued to be paid by the company, adding further stresses to cash flow. Scott was worried that should something similar happen to him, the business would fail. Reserves are depleted and although they still have access to lending, this will need to be secured against their family homes.
Without his business, his life-style would change drastically, his Directors Loan would be lost and he would need to lay off his remaining employees.
The solution
Scott arranged Key Person insurance for him and Andrew. This will provide funds into the business should either of them die or become ill. These funds can be used in any way they wish in order to keep the business afloat
Their income, as well as that of their direct employees is now insured. If Scott or Andrew are off, they have 80% of their income insured, plus an additional amount to keep up pension contributions. Their employees cover is similar, but instead of paying until retirement, their policies provides them with up to 2 years income per claim. This helped Scott keep the premium down whilst improving their employment contracts.
Andrew and Scott also reviewed the Shareholder Agreement. Upon the death of one of them, a Shareholder Protection policy will provide the funds necessary to purchase the shares from the other partner's family.
Scott was also surprised to find that he could set up his own personal mortgage insurance through the business, tax efficiently.
Online tutor, Samantha
Samantha had just bought a new home. Her mortgage repayments would be £1,100 per month and her bank manager advised her to arrange life and critical illness cover.
The problem
Samantha has no dependants and no other income coming into the house.
She has been running an online arts tuition company for the last 3 months. She has no employees, very little overheads, and a modest but sustainable turnover.
Samantha had a quote for Life & Critical Illness cover from her bank manager. It did cover 42 conditions, but at £82 per month, it was a significant cost for her. She decided to do more research.
The solution
After having had a 15 minute conversation with an adviser, Samantha realised that her main priority was not paying off the mortgage if she died, but making sure that she could continue to pay the mortgage if she was unwell.
Although being off work with something critical such as cancer was a possibility, Samantha realised that critical illnesses such as arthritis, loss of sight or any myriad of conditions could take her out of work.
Samantha then decided that an Income Protection policy that covers any condition resulting in being off work was a better option. As the policy pays claims on a monthly basis it was a significantly lower cost than the Critical Illness policy. She was surprised to find out that she could claim on it as many times as needed, even for the same condition.
She did also take a small Life and Critical Illness cover. This could be used to cover some additional costs of being ill such as care, hospital stays or adjustments to her home whilst the Income Protection kept the essentials paid for.
Samantha spent a little less on her policy, but got much more comprehensive protection.
Self-employed IT contractor, Kubi
Kubi is expecting his first child in a few weeks’ time. He has decided it is time to get some life cover so his wife and child would be looked after if he died.
The problem
Kubi is an IT contractor. Most of his work is for a national firm based in his home town.
He set himself up as a Limited company five years ago. He plans to keep the business running but is slightly concerned about legislation around IR35.
He does have a clause in his contract stating that should he be unable to fulfil his duties, he must find a replacement.
The solution
With no mortgage at the moment, Kubi didn’t know where to start when looking at levels of cover. The LifeSearch adviser was able to share data on the average cost of raising a child and establish an estimated budget for possible future home buying. When combining this with a look at outgoings and household income, Kubi was delighted when a figure for Life Cover was suggested that sounded sensible and gave peace of mind it would look after his family. The cover was even inflation proofed so would be suitable in the years to come.
This conversation with the adviser also helped Kubi understand what would be needed if he was too unwell to work. Being able to insure his own salary and dividend payments was not something he had ever considered and had been a worry. The Income Protection policy that he took even had Carers Cover, allowing him to take time off work if he had to become a carer for his family.
Kubi’s Limited company also allowed him to set the policies up tax efficiently. The policies are paid for by his company, incur no P11D tax and are treated as Allowable Expenses. He was concerned that if he shut his business he would have to start again, but the insurers had taken this into consideration.
Kubi was also pleased to discover that should he not be able to fulfil his contract due to illness, the Key Person policy had this covered, providing his company with funds to employ a locum whilst he recovers and ensuring that his business would continue to run successfully.
