The Life Cycles That Impact Protection Levels
Both CF1 and R01 use the concept of seven life cycles to illustrate factors that impact on the level of protection required at different stages of a client’s life. Here, we explain these life cycles further to help with your CII CF1, R01, R05 or R06 exam revision.
This article is correct as at 23 July 2024.
1. Childhood
Protection needs will be met by the parent/guardian.
2. Young Single
This stage typically involves young adults who may still be reliant on their parents for some financial support for example, they may have finished full-time education are still living at home. If unmarried, and without financial dependents, their protection needs are generally limited to maintaining an adequate emergency fund and possibly insuring their income against illness.
On rare occasions a young adult could have a relative who relies on them, and their death could cause financial hardship to the relative. In this scenario a term policy could be appropriate.
3. Young Partnered
This stage refers to young couples who are financially interdependent. Ensuring an adequate emergency fund is a high priority, along with considering protection against death or loss of earnings.
4. Starting a Family
During this stage of the life cycle, incomes tend to be at their lowest and yet protection needs at their highest. With limited spare income due to expenses like rent, childcare, mortgage and other living costs, and often relying on a single income, there may be little money available for life insurance premiums.
In these circumstances, lower-cost term insurance products such as decreasing term assurance (like Family Income Benefit) could meet immediate protection needs at relatively low cost. Critical illness cover or protection against loss of income should also be a priority although affordability is likely to be an issue.
5. Family with older children
At this stage, things are potentially becoming more relaxed. Many individuals and/or couples have higher salaries and increased disposable income. If they have had children, these may be close to being financially independent.
Increased protection against death or ill-health may be required due to the higher income levels and to maintain a higher standard of living.
6. Post Family, Pre- Retirement
As the children leave home, thoughts turn from protection needs to investing more towards retirement income. When individuals are close to retirement, typically any mortgage may almost or already be cleared and the children become more financial independent. Disposable income could well be at his highest as earning potential peaks.
There are likely to be some protection needs for death and ill-health but the needs will be lower than in the previous life cycles and the cover will be more expensive.
7. Retirement
In retirement protection needs will change. Life cover to protect a partner and/or protection of earnings against ill health is unlikley to be needed. Protection needs may turn to inheritance tax planning so perhaps whole of life cover and long-term care needs may also need addressing.
These seven life cycles are a general guide and not everyone fits this mold. With divorce rates high and the numbers of people choosing to live alone, new challenges are being faced with those affected having to re-look at their financial future and adjust to their new reality.
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