e liable to pay capital gains tax on the sale value if the price at which he sells is higher than the market price of the shares on the date he inherited them. If the total gain is less than £ 10,000, no tax is payable and of course, sale at a lower price also does not attract tax (HMRC, 2012).
3. Critical Illness Cover pays out a lump sum amount when a specified illness occurs, which for Kyle’s mother was a minor stroke. Once the claim amount is paid, the coverage ceases and she is not entitled to any other payments from the insurance company. A Permanent Health Insurance (PHI) policy would have paid her up to 65% of her pre-tax earnings until her normal date of retirement which is 65 years of age (Conner, 2013).
When Kyle’s mother first considered insurance, the PHI policy would have been a better choice as it would have covered any medical condition that prevented her from working whereas the Critical Illness Policy would have covered only a specified list of ailments. Since a medical condition that prevents work could occur at any age, the PHI policy would have paid her money each year until her scheduled retirement age (Bevis, 2009).
For Kyle’s mother, the question now is whether the £ 68,000 lump sum she received from her Critical Illness policy at the age 59 is better than 65% of her earnings for 6 years that she would have received with the PHI policy.
This question can be resolved by finding out the yearly payments a PHI policy would need to make for 6 years that would equal the present value of the lump sum she received. The interest rate is assumed as 5%. The calculation is made in the table below and shows that an annual payment of £ 13,397.19 for 6 years from the PHI policy would have the present value that equals the lump sum of £ 68,000. To get these annual payments, the mother’s annual salary when she had the stroke should have been £ 20,611.06.
4. Kyle and Helen need to make a personal financial plan to meet both