John, 45, is an office manager looking for protection. He has a £200 000 mortgage and two children that he has custody of following his divorce two years ago. He doesn't exercise and although he had an alcohol problem four years ago, he does not drink. What would you recommend for him?
Gerry Warner, Zurich UK Life
We should start by assuming that John has no current personal protection although in his role as an office manager, we might assume he'll get some limited help if he is off work.
With a mortgage and custody of the children, John should ensure he can maintain his outgoings and keep the family together. His primary need is for income protection.
As a single parent, he also needs to consider the implications for his family in the event of his unexpected death or serious illness and we would recommend some term and accelerated critical illness cover.
Zurich can offer him a product that includes all three benefits - one that pays an income if he cannot work and a lump sum if he suffers a critical illness or dies.
For an income benefit of £2,000 a month, 6 month deferred period and an accelerated critical illness benefit of £200,000, the premium from Zurich would be £215.76. Costs could be reduced by selecting a lower level of CI cover whilst removing the critical illness benefit altogether could reduce the cost to £98.88.
In terms of his medical history and in particular, his drinking, we'd initially require a general practitioner report. This will help explain the duration of the drinking episode, was it a one-off or is there evidence of relapses? Was there any lasting damage?
If not, there is no reason why we cannot offer standard terms for all three benefits.
Peter Chadborn, CBK (Colchester)
I recommend John view his protection requirements in two categories. Firstly, he should protect debt by effecting cover tailored to the balance and term of his mortgage. Secondly, he should address the financial dependency of his children.
Consideration needs to be given to the level of income the family would need should he suffer long-term incapacity and this should be offset against any sick pay his employer may provide. In doing so, John needs to think beyond just covering his mortgage repayments.
Of equal importance is the income requirement for the children in the event of John's death. Again, this analysis should consider any employer death-in-service benefit.
A degree of critical illness cover should be incorporated but we should be mindful of overall affordability and high likelihood of loadings.
The underwriting implications of John's historic alcohol ‘problem' should be an intrinsic part of the research process. The potential for counter-offers should be understood by advisers in advance of recommendations in order to mange client's expectations. We find AEGON's Pre-Underwriting Questionnaire to be a valuable tool for this exercise. Cost should never be the principal influence in protection recommendations and even less so with pre-existing health issues.
For example; Fortis state the need for a medical exam with blood tests and standard rates are possible if tests such as liver function are normal. Bright Grey informs that a GP report will be necessary and ratings could ultimately vary from mild to decline depending on severity of the condition and other influencing criteria. An IP decision could be postponed until 5 years of abstinence have passed.
Ed Stuart Brown, Friends Provident
John needs to ensure that his mortgage is covered and, just as importantly, that his family will have sufficient funds should the worst happen.
Although he doesn't exercise and has had an alcohol problem, this does not immediately rule out any type of cover. He needs to understand, however, that he could see higher premiums, have exclusions applied to new policies or even not be able to start a new policy. It's important that early dialogue takes place with underwriters, who can assess John's health and determine what effect the alcohol problem has had. Expectations can then be managed effectively.
His first step should be to make sure that sufficient life and critical illness cover is in place for the mortgage and to provide an extra lump sum, say £100,000, to help with looking after his children. If he already has mortgage protection in place, are guaranteed insurability options included? These may be useful if his health status means that ratings or exclusions are applied to any new policies he takes out, or stops him taking out cover.
As an office manager, John may well have income protection in place, but is this sufficient to maintain his mortgage payments and household bills? The alcohol problem could limit what additional income protection is available to John, though, and he should consider taking out accident, sickness and unemployment cover, which would not require medical underwriting.
Finally, John should maintain any existing cover, as he may find it difficult to replace.
