I visited a client yesterday evening and who, for privacy reasons I shall just call Mr G and his partner Miss F. Like many of our clients at Money Minds, they were referred to me by an existing client and they initially wanted to see me regarding some credit card and loan debt.
The meeting revealed a few nasties and just how, like so many people, they’re paying a lot of money for things that are either overpriced or they don’t need. Read on…
After looking at the available options, the solution for the credit card debt was to do two 0% balance transfers and then completely pay off the cards in the 16 month interest-free period. What this means is that all their monthly payments will now be reducing the balance, rather than servicing interest.
It would have taken Mr G 26 years to pay off his credit card balance based on the payments he was making. His balance on one card was £7,200 and he would have ended paying back £41,000 over the 26 year period!
Are you paying minimum credit card payments? Use our Credit Card Calculators to work out how long it will take you to pay back what you owe.
Repaying their loan debt would not be a problem once they reduced the massive interest they were paying on their credit cards and after I helped reduce other outgoings, which I’ll outline below.
Financial Review
As a financial adviser, one of the things I like to do it sit down with my clients over a cup of coffee and get a picture of two things:
1. Their current financial situation
2. Where they want to be financially in the short and longer term
Mr G and Miss F are quite a typical family. He’s a self-employed tradesman in his mid 50’s and she’s in her late 40’s and has a full-time job in retail. They have two children: one in their late teens, the other in their early 20’s. They have a mortgage and plan to retire in their late 60’s.
Mortgage Review
They have a relatively small mortgage (under £90,000) with a term of 16 years and are currently on a competitive standard variable rate (SVR) with their lender. With current interest rates being so low and the likelihood that they will stay low for quite some time into the future, they are happy, at least for the time being to stay on their lender’s SVR.
Protection Review
On top of general insurance such as household insurance and car insurance, Mr G and Miss F have a number of personal protection needs, which are:
- Life Insurance
- Critical Illness Cover
- Income Protection (PHI)
If Mr G or Miss F were to die, the remaining partner would need to pay the mortgage and other living costs on their own. This would create a financial strain, so life insurance solves this need.
If either of them were to develop a serious illness resulting in them not being able to work and possibly requiring long-term treatment, this would also put financial strain on them, which would compound the stress of the illness. Critical illness cover that would pay a lump sum to pay off the mortgage, or even provide an ongoing monthly benefit would solve this need.
As Mr G is self-employed in a physical occupation, his income is at risk if he were to have an accident or become sick. Self-employed people do not have the luxury of sick pay that many employed people do, so have a real need for income protection: insurance that would replace part or all of their income should they become unable to work due to accident, injury or sickness. Income Protection (sometimes called permanent health insurance) solves this need by replacing lost income due to any of these events.
Finally, budget allowing, there is a need for ASU Cover for both MR G and Miss F. This type of insurance will pay mortgage payments for 12-24 months in the case of accident, sickness or unemployment (unemployment cover would only apply to Miss F as Mr G is self-employed).
Both Mr G and Miss agreed to the above needs, so the next step was to review their current policies to ascertain what cover, if any, they already had in place. This is where it got interesting…
Imagine the three of us are chatting around a dining table, drinking coffee. I ask them to let me have a look at the paperwork of any existing policies they have. Suddenly, what was a large mahogany table, is now totally white. Covered in sheets paper.
I try and get to the bottom of what they currently have in place and the questions come thick and fast. Questions like…
- What does this policy cover you for?
- When did you take it out and what for?
- Why is the level of cover this amount?
- When was the last time you reviewed these policies?
Most of the answers were hazy. The bottom line is they weren’t sure. The shocking part is they were paying out nearly £500 per month on health and life insurance type policies and they weren’t even sure what they were covered for. Or if it was the right amount. Or if it was for the right period. £500 per month over several years really adds up…
How were they sold these policies?
It turned out that like many people, they were sold these policies from sales people that were perhaps more interested in making a sale and earning commission than they were about giving the best advice. Two of the three policies had been sold to them by their bank and the other one by a direct sales person who had knocked on their door some years ago.
Maybe this is one of the reasons why banks and financial services in general suffers from a bad image?
What Did I do next?
After completing a basic fact find and once I was clear what their current financial situation was and what needed protecting, I got their feedback. I asked them if they agreed to the needs I had outlined. This is an important step.
The next step is where it got rather complicated. I looked into the cover Mr G had in place and he had no less than 8 separate policies from the same company. It was like a hybrid product of life insurance, critical illness cover, ASU and income protection. Problem was, the cover terms and amounts didn’t make sense – they were all different. To add to that, some premiums were paid monthly and some annually. Talk about overly complicated.
Once I got an understanding of what cover Mr G and Miss F already had, I advised them on what I thought was suitable and what wasn’t. It turned out that not one policy they had was suitable: it either didn’t provide the right level of cover or was for the wrong term. Once they understood what they had, they agreed with me.
The next step was to research the market for products that would meet their needs and just as importantly, meet their budget. As an independent protection adviser, I had access to a large range of insurers as opposed to a single insurance company or bank. This meant that I could help to source the best product at a competitive price.
The bottom line is that I could provide them with the right level of cover, for the right amount of time, with the right benefits for £200 less than they were currently paying.
Conclusion
After I left them, they had piece of mind that they would be financially protected AND be £200 per month better off. That’s without savings I helped them make in other areas such as their utilities and credit cards.
This story illustrates how much money you can ‘waste’ if you don’t take make the effort to review your finances from time to time. The financial review service I provide to my clients doesn’t cost them anything, as I don’t charge any advice fees. I only earn commission from a provider if I place business and I only place business if it’s the best advice and if the clients are happy to pay for a product. I always tell my clients from that outset that “if we do business great, if we don’t do business that’s also great – at least you’ll have piece of mind that your finances are in order”. And I’ll always leave them with at least one idea to make or save money.
If you have a financial adviser that you like and trust, why not give them a call today and get together over a cup of coffee (or whatever drink you like) and do a financial review. You’ve nothing to lose and you might just end up saving a load of money!
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