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Protection for life stages: Young couples without children

13 June 2019

Junior doctors James and Sophia are sure their NHS sick pay scheme has them covered if they are unable to work. Is their confidence misplaced?

Couple at breakfast

In this series, we're examining the various protection needs of clients as they travel through life's many stages. Here, we take a look at young couples without children.

The circumstances

James and Sophia are junior doctors. They met at medical school and have been married for two years.

They're not planning on starting a family just yet as Sophia has only been a junior doctor for two years and James will be looking to specialise next year. While this will bring a considerable increase in salary, it also comes with a bigger workload.

They've just bought their first house with a decent-sized deposit and a mortgage of £150,000 (repayable over 25 years), and, when they have the time and the money, they like to go skiing.

Despite some bad press, working for the NHS does have some significant advantages, such as the pension and sick pay scheme.

Both James and Sophia are aware of protection, as their financial adviser tried unsuccessfully to persuade them to take out life cover and income protection alongside their mortgage.

They declined both on the basis that they were unlikely to die at such a young age and they were sure the NHS sick pay scheme would ensure they could meet the mortgage payments even if they were off sick for a long time. Are they right?

The objection

Let's have a look at the NHS sick pay scheme. Good as it is, it still has its limitations. The benefits are tapered over the first five years of service.

For someone in their first year of service, it's one month's full pay followed by two months' half pay. It then increases each year (although not in the even steps you might expect) until they have more than five years of service, when they receive six months' full pay followed by six months' half pay.

James currently earns £36,000 per year, while Sophie earns £28,000 per year. James, with five years' service, is at the final stage, but Sophia, who is in her third year of service, only has four months' full pay and four months' half pay.

So the questions we need to ask them are: where would your income come from if you were off work for longer than your sick pay scheme (which is eight months for Sophia and 12 months for James)? Could you both survive and pay the mortgage if one of you was not working at all or if one of you was only on half pay? Let's see how we could help them.

A possible solution

First port of call, as always, must be to protect the mortgage. James and Sophia turned down the opportunity to take out cover when they took out their mortgage. Maybe they didn't realise how cheap it could be?

A good starting point would be a decreasing term policy covering life or earlier critical illness to ensure the mortgage is paid off.

Next we need to look at income protection. James needs a dual deferred period policy, as his NHS scheme will pay six months' full pay and six months' half pay.

The maximum benefit based on 80% of net earnings is £1,856 per month, made up of £556 after 26 weeks and £1,301 payable after 52 weeks.

Sophie is a bit different. She is on four months' full pay and four months' half pay.

This could be a problem as Zurich does not have a four months' deferred policy. But worry not - under the special features for doctors and surgeons, regardless of how long the NHS will pay them for, if they select a dual deferred period of 26 weeks and 52 weeks, we will start paying a claim when the NHS scheme stops paying them, even if this is before 26 weeks or 52 weeks.

So we need a d26 and d52 policy for Sophie with the maximum benefit of £1,494 per month, split by £419 after 26 weeks and £1,075 payable after 52 weeks.

Bearing in mind that they like skiing, we will include total permanent disability and fracture cover along with waiver of premium to ensure premiums are paid if they are not working. The total cost is £88.51 each month - this is based on a Zurich Personal Protection policy quote from February 2019.