Bertie, 50, has watched the demise of his brother to Alzheimer's without any financial protection. Bertie is a managing director for a department store in Edinburgh. He has private medical insurance through his company but no other cover. He can afford £200 a month. He would like his wife Ethel, 55, who is a housewife to be protected too. Both have been tee-total for the past six years. Ethel smokes 20 a day. They do not have a mortgage but have a 17 year old son living at home. What are their cover options?
Matt Morris, LifeSearch
As Bertie and Ethel have no mortgage and their son is old enough to look after himself, their need for protection is not immediately urgent. As they are both in their 50s, cover will not be cheap but they do have a decent-sized budget of £200 which will help them purchase a good level of protection.
Assuming Bertie is a high earner, as his job suggests, he may want to consider a whole of life policy to offset any Inheritance Tax liability that may be payable on death. Any policy they take out should be written into trust to make sure payment is not held up.
There is a mention that they are now both tee-total. I assume this does not imply there has been a previous history of alcohol abuse.
Something else to consider is whether Ethel is dependent on Bertie's income. If so they could consider taking out an income protection (IP) policy on Bertie's income up until the age of 65 or 70 years old. If Bertie is concerned about contracting a debilitating illness or disability, as his brother did, leaving him unable to work, then this policy would offer him peace of mind.
Ethel should also consider houseperson's IP to cover the cost of having to hire home help if she can no longer carry on as a housewife due to ill health, although finding cover may be difficult due to her age.
IP for Bertie for £2,000 a month, assuming good health, guaranteed monthly premiums and a six month deferred period would cost £71.80 with LV= to age 65 and £124.06 with Bupa to age 70.
Rod McKie, Aegon
The first thing Bertie should do is find out what his company pension provides by way of spouse's death benefits and if he has any death in service benefits. Assuming he has adequate provision here, and given the fact they do not have a mortgage, he may not need additional life cover.
Bertie should also find out what his employer's sickness policy is to assist in identifying if he has an income protection (IP) need. Given that very few employers provide sickness cover to retirement he may wish to consider purchasing an element of IP up to retirement. Assuming Bertie retires at age 65, a 15 year term, 26 week deferred period, £60 a month IP plan could provide around £1,153 as a monthly benefit if Bertie became unable to work due to ill health.
Although Bertie is not likely to have an immediate need for life cover, the difference in cost between life with critical illness (CI) and stand-alone CI is small relative to his budget. Therefore, Bertie should consider a joint life with CI plan over 15 years to take him up to retirement. For £140 a month, assuming Bertie and his wife are in good health, and allowing for the fact that Ethel is a smoker they could purchase £41,045 of life with CI cover over 15 years.
If he wanted to have life with CI cover extending post retirement, they may wish to consider a longer term. As an example, £140 a month for 20 year life with CI plan would purchase £32,449 of cover.
Ian Brown, Skandia
It is often the case that an illness of a family member, prompts us to question our own financial protection. Bertie is no exception and he is wise to consider protecting himself and his family.
Bertie is the sole earner and the impact of him suffering a critical illness would have a significant effect on the family finances. Although his private medical insurance may cover the cost of treatment, and they have no mortgage to cover, there will still be significant household bills to pay. The state is unlikely to be of much help in this circumstance. They also need to consider support for their son, which could include university fees in the not-too-distant future.
With a budget of £200 a month Bertie and Ethel could consider two single life rolling term critical illness (CI) policies with suitable sums assured for their individual needs. Without the need to cover the specific term of a mortgage, rolling term allows the flexibility of extending the term throughout their lives with no need for further medical information. Having a policy each gives them greater cover and flexibility for their budget and both policies could be held in the same plan for convenience.
Skandia's CI policies cover a wide range of illnesses including Alzheimer's disease and cover will not necessarily end with a claim.
Should either of them have to make a claim, the lump sum could be used to pay the household bills if Bertie was not working, or for private treatment should he roll the term on into retirement after his company medical insurance has expired.
