So how does protection fit in?
Having seen that ideal picture, that road to retirement might now seem more realistic. This might be the time that we want to pop the big question to Janice and Fred: what if?
What if you wanted to retire early? What if you were to get divorced? What if you took all your tax-free cash from your pension? What if you wanted to leave some money to your children?
These might be common scenarios to factor in, but what if you developed a serious illness? What if either of you unfortunately passed away unexpectedly?
Or what about if between now and retirement you were injured or became too sick to work? What would you want to have happen to the lifestyle you are accustomed to?
These are not easy conversations to have, they never are, but neither is a conversation with a client who never had a conversation about these events and is now facing them head on.
Let us take another look at some of those 'what if' scenarios. What if Janice sadly died suddenly aged 45? If we ran this as a scenario within our cash flow modelling system, we might see a result similar to the graph below.
What might a protection recommendation to Janice and Fred look like based on our results? Well, if they are making regular mortgage repayments, some life cover to repay that debt could be a good starting point. Additionally, we might want to introduce the idea of using a family income benefit policy to replace some of the lost income.
A discussion about children could pave the way to talking about guardianship arrangements – who would look after the children if either or both parents died? In our case study, Janice and Fred are married, but what if they were not? It is a common misconception that if one parent dies, the surviving parent automatically has legal parental responsibility.
What if either client were to be diagnosed with a critical illness? Let us assume that Fred suffers a heart attack during his 50s. Might he now be considering early retirement? Or cutting down his hours? Again, if we run this scenario we might be presented with the following results.
A reduction in his working hours might see Fred’s pension contributions significantly reduced, and early retirement might result in additional strain on current assets and investments.
A critical illness plan might be able to provide Fred and Janice with a sum of money to allow them to adjust the family home to cater for possible lifestyle changes. A family income benefit policy set-up on a life or earlier critical illness basis would pay out a monthly income until the end of the term if Fred had to make a claim.
