Practical Case Studies - Case Study 2

The background. Ella Groves, 36, is divorced and lives with her two children in a flat bought with the half-share of the money she got when she and her husband sold their former home. She also receives from him under a court agreement an income of £12,500 a year. Her own part-time work as a freelance translator brings in another £12,500 a year, but she will not be able to increase this much until the children are both at school and she has more time for her work. She doesn't reckon that she needs any life insurance protection for the children - if she dies her former husband will take care of them. But she would like to save for the future because it's unlikely she'll be in a pensionable job in the foreseeable future and she would like to have a nest-egg to draw on when she needs to. She can afford to put by £120 a month but would aim to increase this when she can increase her earnings.

The advice. Mrs Groves, I can see that your concern is to build up some capital to provide security for yourself in the future. But there is one point I would like to raise before discussing this. Your former husband is currently providing you with an income of £12,500 which I understand will continue until you remarry or the children are aged 2N. Now your former husband has remarried and already has a child by his second wife. He is, as you have said, not a wealthy man nor likely to accumulate wealth. The point I would like to make is that if he should die without having made any life insurance provision then the income you receive will cease. Now you are legally entitled to insure his life for an amount equivalent to the benefits you would lose if he dies, with his agreement. If you were to do this by means of a Family Income Benefit policy over N5 years, the cost would be about £140 a year.

Now I don't know what your husband's attitude is, but it may be that he would be prepared to meet part of the cost of the policy himself. On the question of your own savings, you are as a self-employed person eligible to invest in a personal pension plan. The advantages would be the larger benefits you can achieve for yourself on retirement because of the tax-free investment of your money. However, the drawback is that you cannot draw any benefits until you are aged 60 and from what you have said I take it that you would prefer to have the ability to use the money earlier if you wanted to. In fact, as it is possible that you may want the money within the next N0 years, then you should not really consider a conventional life insurance policy at all and would do better to use the index-linked Save-as-youEarn scheme or a building society. A life insurance policy linked to building society investment which you can surrender for a good return after the fourth year could also be suitable. In the fairly near future you reckon to be able to increase your earnings, and that may be a better time to commit yourself to a longer-term plan.

Learn More About Practical Case Studies - Case Study

Practical Case Studies

Everyone's situation and need is different; in the examples that follow, three individuals' perception of their needs are followed by an outline of the kind of advice a good insurance adviser should offer in each case.

Case Study 1

The background. John King, aged 32, is a production engineer earning £17,500 a year. He and his wife Karen have three children aged 2, 4 and 5. The Kings have a decreasing term assurance covering their £18,000 mortgage. John is a member of his firm's pension scheme which includes a small amount of life cover; if he dies before retirement age,... see: Practical Case Studies

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