Carol and her husband Stuart are both 38 years old. They live in London with their four-year-old son, Benjamin. After Carol's mum was diagnosed with breast cancer earlier this year they began to worry about falling ill and being unable to work. They have life insurance, but would like cover should they become critically ill. As they both smoke and are on a strict budget they are worried that they would not be able to afford the cover. What are their options?
Jason King, Torquil Clark Life Insurance
Like many who decide to buy illness insurance it is the unfortunate experience of another that leads them to question their own situation.
The potential solutions are many and varied so we would prefer to look at their existing life insurance arrangements as there could be cost efficiencies available.
The obvious solution is to look at critical illness (CI) cover that will pay out a lump sum on diagnosis of one of a number of specified critical illnesses, including cancer.
Around 70% of female CI claims are for cancer and it accounts for around 50% of male claims.
We could secure £100,000 of level CI benefit over a term to age 60 on a joint basis at a premium of £125 per month.
However, for reasons of budget and best advice we would encourage Carol to consider income protection (IP) as a potentially more suitable alternative.
This will provide a regular monthly income if injury or illness prevents them from being able to work.
This is a more comprehensive cover and could pay out a larger sum than the CI policy in the event of illness in return for a lower premium.
As an example £1,000 per month benefit each could cost just £50 per month depending on their occupations.
As Carol's mum will have been over the age of 50 when diagnosed and there appears to have been no other incidence of cancer in her immediate family there will be no particular concerns from an underwriting perspective or any special terms imposed for either CI or IP cover.
Eloise Flint, BUPA
Carol and Stuart are wise to recognise the potential financial impact of a critical illness, especially given the known hereditary nature of cancer and Carol's mother's recent diagnosis.
BUPA's critical illness (CI) plan covers 38 conditions, including age onset diabetes and loss of independent existence.
The policy pays out a lump sum on diagnosis of an eligible condition, and is available as a stand-alone policy or to cover critical illness or earlier death.
For example, a 25-year term £30,000 joint death or earlier CI policy, with guaranteed premiums for a male and female smoker aged 38, costs £63.85 per month.
Alternatively, individual policies for Carol and Stuart would cost £28.49 and £39.86 respectively. They will provide £30,000 cover for each of them, as well as twice the amount of child cover (25% of sum assured, maximum £20,000) at a difference of only £4.50 per month for twice the benefit.
Other benefits include BUPA Healthline, a telephone service available 24/7 that allows members and their families to talk to BUPA nurses about medical issues.
An independent service, called Best Doctors, which can locate and contact specialists qualified to treat the condition for which the claim has been made, is also available to clients making a claim.
Companies vary enormously in the conditions covered under a CI policy, so having decided how much cover they need and can afford, the couple should ensure their policy is fully comprehensive, and not just choose the cheapest premium.
Nick Kirwan, Scottish Widows
To start, we assumed Carol and Stuart's life insurance covered their mortgage and no more. We also assumed that they were both fit and healthy.
We cannot ignore Carol's family history of breast cancer. However, making the assumption that Carol's mum was over 50 when she was diagnosed and that no other close family members have suffered from breast cancer, it is likely that she would get standard critical illness (CI) insurance rates.
If they are eligible for income protection (IP) on an own occupation basis, this would be a good foundation for them with some CI on top if their budget can stretch to it.
They could use this to cover any debts, pay for treatment not available on the NHS or even pay off part of the mortgage to reduce their monthly outgoings.
Adding life cover to the CI would add little, if any, cost and would provide extra security for each other and for Benjamin.
It may be possible to offset some of the extra cost by switching their life cover to a pension term assurance - but this would depend on the circumstances.
If own occupation IP is not available then they may prefer CI on a decreasing basis for at least the full amount of the mortgage and perhaps a bit more on top for extra protection.
Taking this route may allow them to include life cover at little extra cost and free up their current spending on life cover.
If this all works out to be too expensive, reviewable premium cover may be a cheaper alternative provided they understand that the premiums could go up in the future.
For example, they could take out £100,000 decreasing CI with life cover on a reviewable basis over 20 years for around £70 per month.
