Gemma, 30, has just bought her first property with a mortgage of £147,000. As she has income protection cover through her employer, Gemma is looking to take out a personal critical illness plan. Although she is a fitness fanatic and does not smoke, her mother was diagnosed with multiple sclerosis, aged 51, and she is concerned this will affect her application. What policy will best meet her needs?
Alan Lakey, Highclere Financial Services
Gemma has the option of a term assurance based around the mortgage term or a whole of life (WOL) plan, which offers the flexibility to adjust to future mortgage and lifestyle changes. Perversely, it is cheaper for her to arrange a plan with integral life assurance than a standalone plan and although life cover may not be needed now it is likely to be required in the future.
While a decreasing term plan can be obtained for as little as £25.70 per month, it would have reviewable premiums. A better option would be a guaranteed rate plan with Scottish Provident at £38.31 per month. A more effective and flexible choice would be WOL using Skandia Life's Protect plan. With mortgage repayment methods fluctuating between capital repayment and interest only, and with flexible mortgages becoming increasingly popular, a WOL plan allows for future adjustments.
At £43.85 per month it is more expensive, and, of course, will undergo reviews every ten years. It provides cover for mastectomy and angioplasty, a product more suitable for females, and it offers critical illness (CI) buy-back as an option.
As is often the case, it is a choice between cost, quality and flexibility. Assuming it is affordable, and that the concept of reviews is acceptable, it would be my favoured route.
The majority of providers are likely to exclude cover for multiple sclerosis (MS) because Gemma is statistically a higher risk due to her family history. It may be possible to retain MS and suffer a health rating, this being dependent on the underwriters and the reinsurers.
Roger Edwards, Bright Grey
As Gemma is single and has no dependents she does not need life cover. Gemma's first port of call should be to check the extent of her income protection (IP) cover with her employer. Will it pay her full salary for the duration of any illness absence or will it only pay a proportion?
Obviously, if in the future Gemma had a critical illness she would not want any money problems, and removing the biggest financial commitment – the mortgage – from her monthly expenses would certainly help her get by on an IP benefit lower than her full salary.
Gemma should consider a CI only product with reviewable rates, on a decreasing basis for £147,000 for 25 years. This would cost £29.07 per month. Another consideration for Gemma is her personal debts. Single people are increasingly living beyond their means and personal debt of £10,000 to £15,000 is not unusual. It is therefore worthwhile paying a little extra each month for the comfort of knowing that all her personal debts would be taken care of, should she become critically ill and be unable to keep up loan repayments. For an extra £3.67 per month, Gemma could add an extra £13,000 of level cover into the plan to give her this extra debt safety net.
Gemma is very fit and healthy due to her exercise regime and as long as she is not showing any symptoms such as numbness or blurred vision, the plan will be issued at ordinary rates with a MS exclusion on account of her family history.
Rod McKie, Scottish Equitable Protect
As a minimum we would recommend level or decreasing – dependant on type of mortgage taken – life with CI protection and total and permanent disability (TPD) cover, including waiver of premium (WOP). The sum assured should be for least £147,000 to cover Gemma's mortgage, with an appropriate term. Additionally, any other debts and cover requirements should be taken into account when deciding on the final amount and term of cover.
Although Gemma is single, it would be preferable to take out life with CI cover given the relative low additional cost. As her employer provides IP, she should probably join this scheme before considering any individual cover. However, it would be worth checking the cost, level and duration of cover that this provides to assess if additional IP would be worthwhile.
It is likely that Gemma will require frequent changes to her cover as she moves through the life stages. Therefore, taking this cover as part of a flexible proposition will allow these changing needs to be easily accommodated within her existing plan.
While the life cover could be accepted at ordinary rates, her family history of MS means that the CI, TPD and WOP cover would need to exclude MS and/or any disease of the central nervous system. Scottish Equitable Protect would offer life including CI cover on either a reviewable premium basis, at £38.83 per month, or on a guaranteed premium basis, at £53.69 per month.
