MONEY MAKEOVER

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The Independent Online
Name: Susan Cookson

Age: 41

Job: PA at ICI in Runcorn, Cheshire

Salary: pounds 19,000

Susan has just come up for air after an emotional crisis and a bout of pneumonia. But her money matters are still submerged in murky waters. "I separated from my husband last July, so my finances are a mess. For the first six months of the separation I was really ill, so it's only now that I'm able to sort things out," she says.

Even though Susan is on reasonably good terms with her husband now, she is worried about the financial side of the imminent divorce. Having planned to retire early, the couple's savings and assets are still closely linked. The bungalow they lived in is now on the market; only when the sale has gone through, the divorce is final and Susan knows how much money she is left with will she feel able to buy a place of her own. In the meantime she's going to move in with her parents.

Bryan Fisher, financial planning manager of Berkeley Financial Planning in Coventry (01203-555 240) says: "As you're going through a divorce, I'm sure you know about the financial implications of this on your pension. If either of you petitioned for divorce on or after 1 July 1996, then your pensions will probably be taken into account in any settlement. You've been in a company pension scheme for 23 years, so you will have accrued a sizeable benefit - probably more than your husband has. Hopefully your solicitor will go into all of this.

You haven't got a massive amount of disposable income at the moment, given what you are spending and the fact you want to wait and see what position you will be in after the divorce. But there are two things you should consider urgently.

Critical illness insurance is the first thing. This pays out a tax-free lump sum if you are diagnosed as having a critical illness, eg. cancer, heart attack, stroke etc. Unfortunately, there is a strong chance, statistically, that you will suffer from one of these conditions before you retire. For example, breast cancer hits one woman in 12.

Looking at the situation you are in now, it would make an awful lot of sense to cover your single largest liability - your mortgage. The insurance cover would make sure that if you did suffer a serious or critical illness, the rest of your mortgage could be paid off.

Three insurance companies offer a suitable policy for you. Here are some examples of monthly premiums for pounds 53,000 insurance cover (the amount you have outstanding on your mortgage) for 10 years: Pegasus pounds 21.20, Scottish, Provident pounds 27.26 and Zurich Life pounds 28.17. These premiums assume you haven't smoked for 12 months and don't intend to start.

The second thing is income protection (permanent health insurance or PHI).Your company gives you some protection against losing income if you became ill long term. It pays your full income for six months and half pay for the next six months. After 12 months the company would stop paying you at all, effectively leaving you `on your own'. PHI gives you a replacement income, so you would be able to keep up your financial commitments.

This type of insurance is complex, and you need more information for an accurate quotation, but here is an example to give you an idea how much it costs: Friends Provident Increasing Cover Plan provides an income of pounds 90 per week which you would get after six months off work. This rises by five per cent a year compound until your 60th birthday. After 12 months off work the income would rise by a further pounds 148 per week. The premium for this type of protection is pounds 38.97, assuming a class 1 occupation (ie. administration). When you're thinking about critical illness insurance and PHI, ask yourself some questions. If I get ill or have an accident, how will I cope and how will my financial situation change? If you don't feel comfortable with the answers, you may be wise to consider these types of insurance.

You have an endowment mortgage on your bungalow. Endowments have - unfairly, in many cases - had a bad press, and I recommend you keep the policies until they mature. The terminal bonus paid in the last year of your policies can often be as much as the original loan it was designed to cover, so it is important to try to keep these until maturity.

I don't think you'll be able to make any decisions about your investments or retirement planning until the dust has settled after the divorce. Only then will you be able to sit back and see what situation you are in. But for now you are facing some unnecessary risks that should be passed on to an insurance company. Sometimes in life we all have to walk the tightrope, but it is much more comforting to know that you have put a safety net in place just in casen

Interview by Rachel Fixsen

If you would like a "money makeover", write including details of your name, job, salary, reasons you need advice and a daytime telephone number to Money Makeover, Features, 1 Canada Square, Canary Wharf, London E14 5DL; fax 0171-293 2182

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