Marcus and his partner, Ian, are both 38 years old. Marcus is a pilot for a commercial airline and travels to the US regularly. Ian is a chemistry teacher at a secondary school in Harrow. Both are in good health, but Ian's family does have a history of arthritis, although he has shown no signs of having the condition. Marcus' inheritance has allowed them to buy a house with an outstanding repayment mortgage of £86,000. They are looking for protection cover, but do not know what to prioritise. What are their options?
Doros Nicolaou, Millfield Partnership
Protection should form the foundation of an individual's portfolio, as other household objectives would suffer if either Marcus or Ian were to die or suffer an illness. In most cases it is recommended that the mortgage and other debts should be settled in the event of either of them dying. Ideally, cover against the occurrence of a critical illness should also be considered, as the likelihood of this happening is even higher than death.
A dedicated protection package, specifically tailored to repay the mortgage, could be considered as an alternative. Ideally the cover should be for the full loan over the duration of the mortgage, with the cover being paid as a lump sum on either death or earlier critical illness. Whether this cover is arranged on an individual or joint basis depends on personal preference.
Marcus and Ian should also consider IP in the event that they suffer a long-term illness or disability. Employers do often offer some sickness cover within their employee benefits package. However, they would need to confirm that this is sufficient to meet their commitments.
Providers have a differing approach to how they view Marcus and Ian's occupations. In the case of Marcus, his occupation and regular travels to the USA could prove an issue; as would the fact that as a pilot he can retire before normal retirement age. This should be taken into consideration when the length of any cover is considered. Similarly, some providers view Ian's occupation as carrying an element of risk, particularly due to the high stress level associated with the teaching profession.
Paul Bennett, AXA
The main priority for Marcus and Ian is IP cover. This will ensure they can both continue to meet living expenses in the event of illness or injury. Both should have cover until their expected retirement age. The deferred period selected in each case should depend on their employer's sick leave provisions. Based on the AXA Protection Account multi-buy discount, £1,500 per month of cover, with a 12-month deferment period would cost £110.77 per month for both lives.
Marcus and Ian should also consider life or earlier CI cover on a joint life decreasing basis for at least £86,000 to cover their mortgage. This would cost £65.21 per month with guaranteed rates and includes total permanent disability (TPD) cover. If sufficient IP cover is selected to cover the mortgage repayments then they may want to consider life cover only.
Although Ian has a family history of arthritis, this would not impact premium rates. Marcus could also consider unemployment cover. This is a lower priority for Ian however, due to the stable nature of his profession.
If affordability is an issue, Marcus and Ian may prefer to opt for reviewable premium rates to reduce cost. They could also decide not to take extra cost options. The level of cover Marcus and Ian choose will depend on their wish to make provision for each other. It is also important to consider any protection cover they already have in place, for example, death in service and employer sick leave provisions.
Roger Edwards, Bright Grey
Marcus and Ian's main priority is to make sure that the outstanding balance of the mortgage is paid off should either of them die or get a critical illness. They should consider decreasing life or CI cover for £86,000 and they should also consider an extra debt buffer, perhaps taking the cover up to £100,000 to ensure any other debts they may have could be repaid. They could take out a menu protection product and split the cover into two portions - a decreasing portion to cover the repayment mortgage and a level portion to provide the additional debt safety net.
In terms of the TPD element of the CI cover, both are in quite risky occupations and they will therefore not get the 'own' occupation definition - though they would both be eligible for a 'working tasks' definition. Ian's family history of arthritis should not cause any problems at underwriting and he should not face a loading on his CI premium.
Both airline pilots and teachers benefit from IP benefits on sickness, but they should check the terms of their cover to see whether they need some individual top-up cover. For example, if their employer pays them for one or two years then they should select an IP product with an appropriate deferment period. Again, Marcus and Ian's occupations mean they would not be eligible for an 'own' occupation definition, but they need to ensure that if they couldn't work due to sickness or disability they have adequate financial back up.
