Simon and Petra were among our first clients in 2004. They called us for advice a couple of months after they’d bought their first house together. Like many young couples in their position, they were completely focused on getting the house so they allowed their estate agent’s in-house financial adviser to sell them all the policies which he insisted they “must have to get the mortgage they wanted”. Petra came to us when she realised that they were paying out nearly £300 per month in insurance premiums and couldn’t afford a social life. The cover they had was good, sure, but it was excessively expensive. It was a ‘Rolls-Royce’ solution which left them with no spare cash. They were in their twenties with no kids and wanted to enjoy life while they were still young, but they had no spare money for a night out more often than once a month.
Simon was ex-army and working as a lorry driver. Petra was a nurse. Their previous ‘adviser’ had sold them life and critical illness cover, Income Protection Insurance and Accident Sickness & Unemployment (ASU) Mortgage Payment Protection Insurance. The first think to go was the ASU cover. I asked them both, “In the unlikely event you were made redundant, how easy would it be for you to get another job?” Simon looked at me like I was nuts. “Are you kidding?” he said. “I’m an LGV driver. I drive artics. I’m always getting offers.” Petra likewise confirmed that in the very unlikely event that the NHS made her redundant she was confident of getting private sector work without difficulty. So that boxed off the redundancy aspect of the cover and as payment protection policies won’t pay out anyway if you get fired for doing something naughty, as opposed to being made redundant, the unemployment cover was clearly… redundant!
That left the accident and sickness aspect of the cover. Simon confirmed that his only benefit would be statutory sick pay but Petra as a nurse would get six months’ full pay and six months half pay. For some reason their adviser had loaded them both with expensive Income Protection Insurance on a one-month deferred basis. That was crazy. It was a clear mis-sale. We advised Petra to cancel her cover completely and replace it with a policy with a 12-month deferred period, making the cover very cheap. In Simon’s case we advised changing from a one-month-deferred policy to a three-month deferred basis; not as cheap as Petra’s cover but much cheaper than the cover he’d been sold originally. We also stressed the need to build up their savings to self-insure at least three months’ worth of mortgage payments in the event Simon was off work sick until his Income Protection Insurance kicked in.
So now we’d put both clients in a position where they would at least have enough cover to pay their mortgage if they were unable to work for a protracted period. This led us to turn our attention to the life and critical illness cover. Both had Death-In-Service cover as part of their employment but it wasn’t enough. They still needed life cover but life cover without critical illness is very cheap. We cancelled the Critical Illness Cover and topped up their life cover. By the time we’d finished they were spending just £45 per month.
Instead of the original Rolls-Royce solution we put together something more like a Ford Fiesta. Unsurprisingly, Simon and Petra are still clients of our company today.