Comments on Case Studies

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Comments on Case Studies

A few general points may be made on these examples.

John King

Nowadays most employed people will find that their pension scheme does provide certain benefits for widows, though the size of them varies considerably. It is always worth checking these and taking account of them in planning one's life insurance needs: there is no sense in over-providing. Note that it is often possible to get the cover one needs more cheaply by making an addition to another policy, as in the case of John King's term assurance. This method is not appropriate, however, in cases where the insurance benefits need to be directed to children in such a way as to avoid capital transfer tax, since as additions to an ordinary policy they cannot be written under trust. Where freedom from CTT is the important factor, a separate policy written under trust is more appropriate. In thinking about future cover needs, one should also remember the increase in the sum assured on a with-profit policy. Such policies provide increasing life cover and if one is taking out a with-profit policy the increase in the protection provided over the years should always be taken into account.

Ella Groves

At uncertain stages of one's life it is not always a good idea to enter the commitment to a long-term life insurance policy. If there is a fair chance you will want to lay your hands on the money within N0 years, then the only possible type of life insurance policy is the building society-linked plan referred to in Case Study 2. But other alternatives, such as SAYE, may be even more suitable. Incidentally, Case Study 2 illustrates the rules about the legal right to insure: though the Groves are divorced and the legal right to insure a husband's life does not apply, Ella Groves can still insure him because of her financial interest in the income with which he provides her.

George Elmer

The element of flexibility is very important in planning. While provision can be made here up to the point of George Elmer's retirement, it is difficult to plan sensibly beyond this at the moment. How much will he sell his business for, and when? This makes all the difference to what will be the best course of action (a) in mitigating any CTT liabilities and (b) in passing this wealth on to his dependants. Besides, whatever he may say, he might suddenly marry - and any complicated arrangements made now for his sister's benefit would have to be undone again.

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Term assurance policies

To provide for your sister should you die before retirement, you could take out a term assurance policy combined with Family Income Benefit. For about £1200 a year you could obtain cover of £120,000 plus an annual benefit of £13,000. To avoid capital transfer tax I would advise writing these policies under trust for her benefit.

Now the benefits for your sister we have discussed would be payable only on your death before retirement. If, as we expect, you are alve and well and start to draw your pension benefits then you will need some other means of providing for her.... see: Term assurance policies

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