Edward is 32 years old and has just moved in with his girlfriend Jo who is also 32. He works as a lecturer at the local university and has, until the recent smoking ban, indulged in a 20-a-day smoking habit. Much to the delight of Jo, he has now stopped smoking entirely. He has led a sedentary lifestyle but now he is a non-smoker he is keen for them to adopt a more active lifestyle and start water-skiing and sky-diving. Both are healthy, as are their families, apart from Jo's father, who has suffered from depression in the past. Jo is currently looking for a job after being made redundant, while Edward earns £30,000 a year. What protection do you recommend for the two of them?
Duncan Horner, Towry Law
There are potentially a number of protection issues that Edward and Jo may need to address. The starting point is to look at their existing arrangements.
Edward works as a lecturer at the local university and so should be a member of the Universities Superannuation Scheme. This scheme provides life cover of three times salary, and so, for Edward, this will be £90,000. No medical evidence is required.
Edward does not appear to have any dependants or liabilities and so this level of life cover should be sufficient. However, if he does have additional life cover, or other protection policies, in place, where he has given medical evidence then he should inform his providers that he has stopped smoking and also plans to take up dangerous hobbies. The former point is unlikely to have an immediate impact on his premiums as most providers will wait for six to 12 months before considering Edward to be a non-smoker, while his hobby pursuits may increase premiums now. Different providers will take different perspectives on these and so this should be an ideal opportunity to firstly define the level of cover needed and then review providers.
Edward will have income protection (IP) provided by his employer though may consider private cover for extended periods. His smoking status and hobbies will have an impact on premium levels, though the deferred period should keep these down.
Jo is not working, and with no dependants or liabilities has limited need for life cover. However, when taking out a policy in the future, she will need to inform the provider of her father's health and also any dangerous pursuits she takes part in. She has no need for IP.
Ian Brown, Skandia
Whether Edward and Jo have a mortgage or are renting, they need to consider how they would cover the cost of their accommodation if they were to lose their regular income. The scenario suggests that they are primarily dependent on Edward's salary, so life and critical illness cover for Edward should be reviewed as a priority.
Edward has taken a very positive step for his health by giving up smoking. Although he would be underwritten as a smoker for a year after giving up, he could then reapply for cover which may reduce his premiums.
Full disclosure of any activities they are taking part in is imperative, but it is also important to be realistic about what they will be able to do in practice. For example, has Edward actually booked any lessons and is he planning to go water-skiing and sky-diving regularly or as a one-off?
Jo may currently be receiving redundancy pay so they need to consider to what extent it is supporting them financially, and how long it will support them for. Hopefully, she will have a new job soon, so as with any life change it will be important to review and check that the protection policies they have in place still make sense or whether changes are needed. Their financial adviser should draw their attention to the importance of disclosing Jo's father's past medical history. Even though this may not seem particularly significant, they should aim to provide as full information as they can to avoid any problems later on should they have to make a claim.
Rod McKie, Aegon Scottish Equitable
Assuming Edward and Jo have just bought their own place, it is the perfect time for them to obtain joint life mortgage cover with decreasing life and critical illness (CI) cover and some income protection (IP) for Edward.
A reducing life insurance and CI product would cover a mortgage, which we have assumed for the purpose of this case study at £125,000 for 25 years. As Edward is the main breadwinner, IP would provide a regular income in case he is unable to work through accident or illness. As a smoker in the last year, Edward would be treated on smoker rates until he completes 12 months without nicotine products. Assuming sky-diving is a one-off event, he would receive standard rates. The water-skiing would not affect the premium. Jo's father suffering depression in the past does not affect the cover or premiums. All quotes assume normal body mass index and no other identified medical conditions.
The cost of all the cover would be £115.22 a month. This is made up of £63.18 (reviewable rate) a month for the £125,000 joint decreasing life insurance and CI cover including total permanent disability. The IP for Edward would cost £52.04 (reviewable rate) a month. This would provide a tax-free monthly benefit of £1,375, to age 60, with a 26-week deferred period, on any suited occupation. Edward should take into consideration any sick pay arrangements, and savings when deciding on the level of cover and the deferred period. If Edward and Jo are on a tight budget, they should prioritise the cover needed. IP should be the most important consideration in this instance.
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