Edward Firth is 35 and wants to take out life and critical illness cover. As a registered nurse, he earns £18,000 a year. He owns a home, which he shares with his daughter, aged 12. The outstanding mortgage, which is in his sole name and has 15 years left on the term, is £52,000. Edward also has savings of £11,000, most of which he inherited from his aunt last year. He is a non-smoker and healthy, but was diagnosed with epilepsy at 17. He has no more than three absence (petit mal) seizures a year, the last having been eight months ago. What options are available to him?
The underwriting issue here is the epilepsy. However, petit mal is the minor form of the condition and, at around three seizures a year, life cover should be easily obtainable without any loadings or exclusions.
Critical illness (CI) cover and income protection (IP) should also both be available at normal rates. However, an epilepsy exclusion is likely to be applied. I would look to recommend accelerated life and CI cover for the sum of the mortgage – i.e. £52,000 over 15 years.
On the assumption that this is a repayment mortgage in his name only, Liverpool Victoria would arrange cover at £13.75 per month on guaranteed rates, although given the manual/physical nature of Edward's occupation the total and permanent disability aspect is likely to be based upon 'activities of daily living' rather than 'own occupation'.
I would then look at family income benefit to cover the cost of raising Edward's daughter should anything happen to him. Benefit should last until his daughter is no longer financially dependent, perhaps age 21 – hence a term of nine years would be suitable. Scottish Provident would arrange £15,000 per year indexed life and CI cover for £23.83 per month on guaranteed rates.
Finally, budget permitting, we would look at IP to protect the client's salary. Depending on the benefits provided by his employer, as an example Scottish Provident would provide £800 tax-free benefit per month, deferred six months and indexed to age 60 for £16.83 per month – also on guaranteed rates.
Lawrence Jackson, Norwich Union
Given the client's current level of income, it can be assumed that provision should be made on the most cost-effective basis and that the £11,000 inheritance will be kept separate, as an emergency fund.
Effecting a mortgage life insurance plan will provide protection for the repayment mortgage liability. The guaranteed premium for this would be £15.30 per month. The plan would cover the mortgage liability in the event of death or diagnosis of a critical illness and would have an initial sum assured of £52,000, reducing over a term of 15 years.
Looking towards financial security for Mr Firth and his daughter, assuming a monthly income of £1,000 is required to support the family for the duration of dependency – which, let us assume, is 12 years – a level term assurance plan can be arranged. A plan, written in trust, with a sum assured of £144,000, payable on death or diagnosis of a critical illness, would have a monthly guaranteed premium of £46.93. A single level term assurance to cover both needs with a sum assured of £196,000 over 15 years would have a guaranteed monthly premium of £66.88.
Consideration should be given to benefits provided by the employer, such as death-in-service benefits and sick-pay arrangements.
Based on the facts presented, Mr Firth's medical condition will not result in premiums being adjusted. The definition for total and permanent disability within the CI cover would be arranged on an 'any occupation' basis. This is occupation-driven and not linked to the medical condition.
Further combinations of contracts to be considered are a standalone CI and a family income benefit plan.
Peter Hamilton, Friends Provident
Edward's main protection concern is likely to be providing financial security for his dependent daughter.
He will want to cover his mortgage – but also provide for cover over and above that, to provide an income to see his daughter through the years during which she will be financially dependent.
He could pay off some of the mortgage early, using the lump sum – but the wisdom of this will depend again on his circumstances, including the availability of any other 'rainy-day' funds. Assuming he wants to cover the mortgage as a minimum, Friends Provident would charge the following premiums.
Level term assurance together with CI on guaranteed rates, with a sum assured of £52,000 over a 15-year term, would cost £19.15 per month.
Decreasing term and CI premium rates over the same period for the same sum assured would be £13.69 per month. Both premiums assume waiver is included.
From an underwriting point of view, we would accept this hypothetical case at ordinary rates. Total and permanent disability benefit would be on a 'functional assessment tests' basis, not 'own occupation' – and if waiver were required we would accept at ordinary rates and would allow an 'own occupation' definition for this.
Edward should probably also be thinking in terms of some form of IP insurance policy if he has none already – this would also be available at ordinary rates (class 3), up to age 55.
