Child Maintenance – A simple solution to protect payments
Maintenance payments often form part of a divorce settlement and can therefore be legally binding.
Whilst this provides some security of payment for a fixed period of time, what is often overlooked is that the payments would cease on death of the person paying the maintenance and potentially cease if the payer became critically ill and was therefore unable to afford to continue making payments.
Life Insurance and, where required, critical illness cover, can provide peace of mind to a divorced parent, knowing that maintenance can be paid if their ex-spouse dies or is diagnosed with a critical illness.
A Family Income Benefit policy is the most suitable type of insurance contract to provide this protection. Family Income Benefit is also one of the least expensive forms of life insurance.
What is Family Income Benefit?
A Family Income Benefit policy is designed to pay a regular monthly benefit in the event that the life assured dies or becomes terminally ill during the plan term. You can tailor the plan benefit to match the maintenance payments at outset and the policy can run for as long as the maintenance will be paid.
The case study below illustrates how cost effective, and essential, this type of insurance can be.
Case Study – Family Income Benefit
Sue and Graham Smith have divorced. They have a daughter, Millie, aged 6 and a son, Thomas, aged 9. The couple have agreed that Millie and Thomas will live with Sue, and Graham will pay £900 maintenance per month (£450 for each child) until they are 18.
Sue could protect the maintenance payments with Life and/or critical illness cover under a Family Income Benefit policy on the life of Graham. If Graham died prematurely or became critically ill and was unable to make the maintenance payments, the children would continue to be cared for financially.
In this example, just £23.45* each month will give Mrs Smith peace of mind. This would consist of two separate arrangements, one to provide for Millie, and one for Thomas. Once Thomas reaches age 18, the maintenance payments will stop, but the cover for Millie’s maintenance payments will continue until she reaches 18. Therefore, after 9 years, when Thomas reaches 18, the cost of the cover will reduce to £13.31 each month, as the premium to the policy for Thomas will stop.
It is also possible to protect the maintenance payments from inflation by incorporating indexation into the arrangements.
This inexpensive type of cover can provide peace of mind that your clients will not be financially disadvantaged. Can you afford to ignore it?
We look forward to working with you and to discuss particular cases as they arise. Hart Insurance Brokers are Trusted Adviser to a wide ranging client base and welcome enquiries for all forms of protection, investment and pension planning cases. As FCA approved pension transfer specialists we regularly assist with divorce pension issues.