Sally Bristow, a 32-year old non-smoker, wants to take out critical illness cover for her and her husband. They have a joint repayment mortgage of £95,000 and are planning to start a family. Andrew is a fitness fanatic and works as a personal trainer. Although Sally is in good health, her mother and maternal grandmother were diagnosed with breast cancer in their late 40s. There is no known history of disease in Andrew's family. What are their cover options?
Jason King, Life Policies Direct
This is an interesting case, where careful account of existing policies needs to be made along with a holistic review of their protection requirements. Despite her own good health, in light of her family medical history, Sally can expect to have her premiums for life assurance rated by 50% and critical illness (CI) loaded by a minimum 100%.
Any existing life or CI cover that was accepted at standard rates should be investigated for any guaranteed insurability options, which could be utilised now or in the future.
As a minimum, Sally and Andrew should consider CI cover for their mortgage liability of £95,000 plus and an extra £50,000. This will ensure that their debts are cleared with a surplus to meet, for example, medical expenses, and home/car modifications.
As well as making guaranteed premiums available, it is also cost-effective to include life cover in any CI plan, we would therefore attempt to address the life cover requirement at the same time as the CI. However, assuming life cover is not relevant at this time, joint life standalone CI cover would cost in the region of £75 per month – including the rating – on a reviewable premium basis. Including life cover on both plans would only increase the premiums by around £10 per month.
We would also discuss the benefits of separate plans for Sally and Andrew for the family protection element, as well as waiver of premium benefit and guaranteed premiums. Importantly, all the CI plans would also provide cover for any children they have.
Peter Hamilton, Friends Provident
The cover options open to them will be influenced by a number of factors, not least any existing arrangements, their priorities and the budget available.
It would make sense to look at providing cover in excess of the mortgage amount, simply as personal protection, and they ought to be considering the benefits of income protection (IP).
Sally's family history does have underwriting implications. If a standalone CI policy was taken out, we would remove cancer as one of the conditions covered from the contract and would exclude any claims arising from any form of cancer or leukaemia under the total and permanent disability (TPD) benefit. These restrictions would not apply to Andrew.
The premium would not be increased, and, for a 25-year term, £95,000 decreasing sum assured on joint lives, the reviewable premium would be £41.10 per month.
If cover was provided for death or earlier critical illness, the above restriction and exclusion would apply to the CI benefit and in addition a small rating would be applied, as the family history increases the risk of death. In this case, using the same details, the guaranteed premium would be £56.00 per month and a reviewable rate would be £45.79 per month.
The premium for IP would depend on Sally's occupation. Her family history would attract a small rating. As they are contemplating starting a family – it may be worth considering single life policies so that a family event option could be included for Andrew. Single life policies could pay out on both lives for a modest additional cost.
Matt Rann, Scottish Equitable Protect
We would recommend that Sally and Andrew take out life with CI cover on a joint life basis, as this will be more cost effective. Reducing cover linked to their mortgage, with waiver of premium facility and total and TPD cover options will ensure they have comprehensive CI cover in place for their current situation.
In terms of underwriting, for Sally, the only known relevant feature is family history of breast cancer. For all benefits except CI, she would be covered at ordinary rates. For CI cover she would be rated at plus 50% of ordinary rates, or at ordinary rates with cancer excluded.
For Andrew, the only known relevant feature is his occupation. The only impact this would have would be on disability benefits. Life and CI cover would be unaffected. For IP he would be covered on an 'any occupation' only basis; for TPD and waiver of premium, on an 'activities of daily work' only basis.
We would suggest reducing life with CI cover, on a joint life first event basis. The sum assured for this would be £95,000, with a 25-year term on a five-year reviewable rate basis. This includes waiver of premium, which would be on an 'own occupation' basis for Sally, and activities of daily work basis for Andrew. Both terms would have a 26-week deferment period, and TPD, which would be on an own occupation basis for Sally, and on an 'activities of daily living' basis for Andrew. The monthly premium would be £41.89. To add IP of £600 per month for both would take the premium to £63.59.
