Family Protection
A family of four, protected for £2 a day
Paul (34) and Jane (33) are raising two young daughters, aged four and six. They have a £180,000 mortgage with 24 years left to run. Paul earns £50,000 a year working full-time, while Jane works part-time and earns £15,000 a year.
Like many people, Paul and Jane had never calculated the financial consequences of a long-term illness. Our review revealed a potentially serious risk. Paul’s employer would continue paying his salary for only three months if he became unable to work. Beyond that point, the family’s primary income would cease, leaving them heavily reliant on Jane’s part-time earnings.
We calculated that the family could maintain their lifestyle for only three months before their income would no longer cover their outgoings. The mortgage would still need to be paid, along with all the other everyday costs of running a family home.
There was a second concern, too. If either Paul or Jane were to die, the surviving partner would be left to raise two young children on a single income. The emotional impact would be devastating enough without the added financial pressure. And whichever of them passed away first, the mortgage would still remain.
The good news is that neither of these risks was difficult or expensive to address. They simply needed the right protection in place and someone to help them put it in place.
| What we put in place | Cost |
| Income protection for Paul
£2,500 per month, rising with inflation, which would start paying once he had been off for three months until he returned to work, up until age 68. |
£34.38 per month |
| Joint life cover
£180,000 over 24 years, paying out on first death to clear the mortgage should either Paul or Jane pass away. |
£13.76 per month |
| Family income benefit for Paul
£40,000 a year for 21 years, meaning if Paul were to pass away in year 3 of the policy, the family would receive £40,000 every year for the next 18 years. |
£17.30 per month |
| Total cost of protecting the family | £65.44 per month |
Total cost was a little over £2 a day, or the cost of a takeaway for the family each month, and for that cost, Paul’s income is now fully protected in the event of illness, the mortgage is cleared if either Paul or Jane pass away, and if the worst did happen to Paul, Jane would have £40,000 a year coming in to keep the girls’ lives as steady as they possibly could be.
Almost everyone we speak to expects the answer to cost far more than this. Reach out to us and ask what your own number looks like.
Business Protection
Two owners, one business, and a £1 million question
Mary (52) and Claire (48) own a successful limited company, with each holding a 50% share of the business. The company is valued at around £2 million, employs a sales manager called Gary (38), and the long-term plan is to sell the business in eight years’ time when Mary reaches 60.
Like many business owners, they had taken sensible steps to protect the company. The premises, stock, vehicles and professional liabilities were all insured. However, there was one vital asset they had never considered protecting: each other.
One conversation changed everything.
If either Mary or Claire were to die unexpectedly, their share of the business would not automatically pass to the surviving business partner. Instead, it would form part of their estate and likely pass to their family. The surviving owner could find herself running the company alongside the spouse or children of her former business partner. While they may never have worked in the business, they would still be entitled to their share of ownership and to have a say in important decisions.
Neither Mary nor Claire wanted that outcome. Equally, neither wanted the other’s family to inherit shares in a private company that they might not understand, while having no guaranteed way to realise their value.
We then asked a simple question: if the worst happened tomorrow, could you personally raise £1 million to buy the other person’s shares?
The answer was an immediate and emphatic no.
There was another risk, too. Gary was responsible for generating around £600,000 of annual sales. His contribution to the business was significant, and replacing him would not be straightforward. If he were to die or suffer a serious illness, the emotional impact on the team would be considerable, but the commercial consequences could be equally challenging.
Recruiting a replacement, training them and rebuilding key client relationships could easily take nine to twelve months. During that time, sales and profitability could come under significant pressure.
Like many business owners, Mary and Claire were unaware that their company could protect itself against these risks. By putting appropriate business protection in place, the company could secure the funds needed to purchase shares from a deceased owner’s estate and provide financial support to help offset the impact of losing a key employee. The cost was modest, but the protection it provided could be invaluable.
| What we put in place | Cost |
| Shareholder Protection for Claire
£1,000,000 of cover increasing with inflation over eight years, paid through a business trust so Mary can use the proceeds to buy Claire’s shares from her family. |
£57.44 per month
|
| Shareholder Protection for Mary
£1,000,000 of cover increasing with inflation over eight years, paid through a business trust so Claire can use the proceeds to buy Mary’s shares from her family. |
£109.76 per month |
| Key person cover for Gary
£250,000 of life or earlier critical illness cover over eight years, owned and paid for by the company and paid to the company on a claim. |
£65.77 per month |
| Total cost of protecting the business | £232.97 per month |
Alongside the policies sits a cross option agreement, drawn up by a solicitor. If either owner dies, the survivor has the right to buy and the family has the right to sell, at a value nobody has to negotiate in the middle of a bereavement. The money to do it arrives from the insurer within weeks, not from a bank that may say no. And if the business loses Gary, it has £250,000 to fund the gap while it rebuilds rather than watching a year of sales disappear.
£232.97 a month is under £8 a day to protect a business worth £2m and the exit both owners are relying on to fund their retirement.
Most people expect the answer to cost far more than it does. If you would like to know what your own numbers look like, our protection specialist will go through them with you. There is no cost and no obligation, and you will come away knowing exactly where you stand.
Inheritance Tax Protection
An £850,000 bill, due six months after death
John, 64, and Ann, 63, have built up an estate worth significantly more than the available inheritance tax allowances. Based on current values and legislation, their two daughters could face an inheritance tax bill of around £850,000.
They were clear about what they wanted and equally clear about what they didn’t. Their priority was for their daughters to benefit from everything they had worked hard to build. However, they had no desire to make substantial gifts simply to reduce a future tax liability. In their early sixties, they may have decades of retirement ahead of them and wanted the security, flexibility and control that comes from retaining their wealth.
For them, the challenge wasn’t how to reduce the estate. It was how to ensure the tax could be paid without disrupting it.
One of the biggest challenges with inheritance tax is timing. The tax is typically due within six months of death, often before probate has been completed. Families can therefore find themselves in the difficult position of owning valuable assets but having little immediate access to cash. Properties, investments and other assets may need to be sold at short notice, and assets sold under pressure rarely achieve their full value.
In John and Ann’s case, their daughters could have faced a substantial tax bill long before they were able to access much of the estate itself.
The solution was straightforward: put in place a life assurance policy designed to provide the funds needed to meet the inheritance tax liability. This would allow their daughters to settle the bill without being forced to sell family assets, helping preserve the value of the estate exactly as John and Ann intended.
| What we put in place | Cost |
| Joint life second death whole of life cover
£850,000, paying out when the second of John and Ann’s death, on a guaranteed premium basis. Written in trust with their daughters as trustees and beneficiaries, so the tax-free money reaches them directly and does not wait on probate. |
£1,091 per month |
Although this might seem like a significant monthly cost, we’d calculated that the second person to pass away would need to live over 64 years from now, to have paid more in premiums than their daughters would receive from the insurer. John and Ann now feel comfortable they can pass on the true value of the estate they have built over their lifetime to their daughters, whilst retaining control of their assets.
Inheritance tax is affecting more people than ever and can be a significant hurdle for your beneficiaries. We are here to help you consider the options even if you feel your current health might impact your insurance choices, so please contact us for an initial discussion.
Gifting Protection
A £500,000 gift with a £200,000 tax bill attached
Sue (77) wanted to help her son onto the property ladder by gifting him £500,000 towards the purchase of a new home. What she did not realise was that, for inheritance tax purposes, a gift of that size does not immediately leave her estate.
If Sue were to die within seven years of making the gift, it could still be taken into account when calculating inheritance tax. As her nil rate band had already been used by previous gifts, the full £500,000 could be subject to inheritance tax at 40%, creating a potential tax bill of £200,000.
The real problem is that HMRC would look to Sue’s son to pay that tax.
By then, the money would have been used exactly as intended: to buy a home. If Sue died just two years after making the gift, her son could find himself with a house, a mortgage and an unexpected £200,000 tax bill. Without readily available funds, he might be forced to borrow money or even sell the property his mother had helped him purchase, the exact opposite of what she had hoped to achieve.
There is another important complication. For the first three years after the gift is made, the potential inheritance tax liability remains at its maximum level. Only after the third anniversary does the tax begin to reduce through taper relief, falling gradually until the gift drops out of account entirely after seven years.
This matters because many people assume a standard decreasing term assurance policy is the right solution. However, a policy that reduces steadily from day one can leave a shortfall during the early years, when the full liability still exists.
Instead, Sue arranged cover specifically designed to match the potential tax exposure. The level of cover remains unchanged for the first three years and then reduces in line with the tapering liability. As a result, the protection closely mirrors the potential inheritance tax bill at every stage, ensuring her son would have the funds needed to pay any tax due without jeopardising his home.
| What we put in place | Cost |
| Gift inter vivos cover, single life, written in trust
Level at £200,000 for three years, then reducing each year in line with the taper. Her son is the beneficiary of the trust, so the money to settle the tax comes from the insurer rather than from him. |
£280 per month |
| Total cost over seven years | £23,520 |
If Sue survives the seven years, the protection policy will have cost her less than 5% of the gift to insure the potential tax. As Sue did not want to pass the potential tax burden on to her son, this was a really simple decision for her to make.
Not everyone is aware of the potential solutions and particularly the cost of insuring. We research across the insurer market and can provide indicative premiums before you make any final decision. Please get in touch if you’d like to know more.
* The clients in these case studies are fictitious and for illustrative purposes only.
*The premiums quoted have been obtained via The Exchange on the basis that standard rates apply and should therefore be treated as indicative only.
*Final premiums and availability of cover can be subject to full underwriting, completion of a formal application, and final acceptance by the insurance provider.