The DipFA factfind exam set for Jan 12th 2017 is fast approaching. Our lead tutor Betul Cuninghame explores some concepts worth considering here:
When recommending protection policies, always imagine the effects of the financial risks on the family and think in detail. It is not a good practice to see only one aspect of such risks and making recommendations on that basis. Recommending life cover equal to the mortgage debt only without giving any extra money for other costs after death may not suffice!
EXAMPLE: the death of a parent may mean that:
- no more income will come from that parent,
- mortgage is no longer affordable;
- it may result in repossession due to non-payment of mortgage
- repossession may bring homelessness to the remaining members of the family
- the other parent will lose his/her job to look after the children etc.
- funeral costs and other costs to be paid from the other parent’s income or savings until s/he gets grant of probate – s/he can’t access any savings of the deceased until s/he gets grant of probate, resulting in costly bills to be paid by other means.
All these risks require careful analysis and proportionate amounts to overcome financial issues after the events. Having a life cover just equal to the mortgage debt will only pay off the mortgage but it will not leave any money for the other costs after death of that parent e.g. funeral costs, legal costs (probate), bills to be paid (one parent’s income may not be sufficient to pay the whole household bills) etc.
- increase the lump sum amount to cover these extra costs and to provide income with the remaining amount OR
- have another cover to supplement the life cover: e.g. Life cover to pay off the mortgage as well as a FIB to provide income to cover all these extra costs after the death of one parent.
You should be able to decide what amount of cover would be appropriate and justify it in your reports.
For more help and support with your upcoming factfind exam see how we can help you at our dedicated DipFA Training web site