Protecting yourself from the unforeseen

Patrick Henry, 32, is a process controller for United Utilities. He lives in Northwich, Cheshire, with his wife Helen, 33, who is a teacher.

The couple married in July 2009 and are in the process of moving house and arranging a new mortgage with Barclays, their existing lender.

The mortgage total will be £153,995 over a term of 13 and a half years, with an interest rate of 0.74% above the base rate, and monthly repayments will be £1,038.75.

Patrick's monthly earnings after tax are £1,900, while Helen takes home £1,850 a month. They both have final salary pension schemes with their current employers. Patrick contributes 5% monthly and Helen 6.4% monthly.

Helen has £5,000 outstanding on a student loan but the couple has no other debts. They have £15,000 in an offset mortgage account with Barclays and £5,000 in an instant access account with Yorkshire Building Society, with an interest rate of 2.1%.

Patrick has a stocks and shares individual savings account with Legal & General currently worth £1,256.12 into which he makes regular payments of £50 a month.

Presently, neither of them have any life or health cover. Their priority is to ensure they can cover outgoings should any unforeseen circumstances occur. Patrick says: "This is an important time in our lives and we want to get the best advice possible."

The first thing Helen Tandy, independent financial adviser for The Gaeia Partnership in Manchester, looked at was Patrick and Helen's mortgage.

"Patrick arranged his previous mortgage when he was single and felt it was not an area he needed to protect," says Tandy. "When he married he did not review this as he had only a small balance remaining."

The couple hope to complete on their new mortgage in the next month, so Tandy recommends that, as they hope to start a family this year, they look into insurance protection as soon as possible.

"With Patrick's current mortgage they have been able to overpay and so reduce the balance substantially. They do not expect this will be the case on the new mortgage in the short term due to their plans to start a family," she says.

Helen has decided she will return to full-time teaching at the end of any maternity leave she takes, and when arranging their new mortgage the couple took into account any reduction of income they may receive during a period of maternity leave.

However, Patrick and Helen want to ensure the mortgage would be repaid in the event of either of them suffering a critical illness or if either one dies. Both have death in service cover through their employer.

In the event of death, Patrick's employer would pay out four years' salary and Helen's would pay out three and a half years.
Tandy also recommends they look at additional protection in case they change jobs. Since they have arranged a mortgage term of 13 and a half years, Tandy says they should get cover for a 14-year period.

Their monthly premium will depend on whether they want the payout to decrease over time (along with their mortgage total) or to remain at the same level throughout.

On a decreasing basis, Tandy says they could get a 14-year joint life first death insurance policy, including critical illness insurance, for approximately £39.17 a month.

Alternatively, level term assurance cover for the same period will cost about £59.40 a month.

Tandy notes that when it comes to complex protection products such as critical illness insurance, customers shouldn't just opt for the cheapest provider.

"You may find these providers do so on the basis of only very clean applications [in other words someone with a squeaky clean health record], they then heavily underwrite them for those who have health problems.

This leads to higher ending prices than those which could be obtained from a provider that does not look as competitive."
In terms of income protection insurance, Patrick is covered through his employer for six months' full pay and six months' half pay. "But he is concerned about how they would manage after this time," says Tandy.

Helen is unsure about the amount of protection she has through her employer so Tandy says she should check this as soon as possible.

The couple have agreed they need enough income protection to cover outgoings of this amount each month.
Tandy suggests they get an income protection insurance plan that would pay out this amount and cover up to the retirement age of 65.

She warns that teachers are heavily rated due to the potential for stress within the job and for this reason she estimates the cover for Helen would be a bit more expensive than someone in a job considered as more 'low risk'.

However, the couples' monthly premium can be made cheaper by prolonging the time between making a claim and receiving a payout – something which should only be looked at if you've got enough savings to cover the in-between period.

For a deferred period of 12 months and paying for sickness to age 65, Helen would be paying £34.55 a month. For Patrick's plan, Tandy says she would need more details of what his job entails to ensure her rating for him is correct.

The couple both have final salary pension schemes with their employers. Patrick's scheme is based on 1/60th basis retirement age of 65 and he expects to retire from this scheme with nearly a full pension.

He also has a small pension pot with Sun Life, which he has previously looked at transferring into his employer's scheme.

Helen is a member of the teachers' superannuation scheme and would currently fall a few years short of receiving a full pension from this scheme.

"She doesn't wish to consider any extra contributions to the scheme at the present time but appreciates she may want to review this in the future," says Tandy.

Helen also has £1,300 in an AEGON personal pension plan, and again Tandy suggests she contact her employer's pension provider and transfers it across.

Finally, Tandy notes that Patrick and Helen do not have wills in place. "They should both draft a will as soon as possible and review and update in line with their changing financial situation," she concludes.

Patrick felt the meeting with Tandy reinforced everything they needed advice on: "The protection side, which we were most concerned about, was covered very thoroughly."

Helen Tandy is an independent financial adviser for The Gaeia Partnership, based in Manchester. Visit or call 0161 434 4681.