My 45-year-old client was made redundant due to the recession, but has recently started a new yet much lower-paid job. With his income protection (IP) policy covering his last wage level, he is now over-insured and would not be able to claim his full benefit sum. He has affordability problems with life and critical illness (CI) and we will probably have to downgrade him. What should I consider?
Wayne Jackson, Premier Choice Group
Assuming that the new employer is not offering any employee benefits and that he has dependants in view of his life cover, in relation to the IP policy I feel it would be beneficial for him to keep the policy but apply for the cover to be reduced to keep in line with his current earnings.
A further premium saving could be made by requesting to extend the deferred period (assuming it is currently 13 weeks) to 52 weeks. While I suggest this, it will of course depend on his contract of employment in relation to sickness pay and any savings to fund an income gap.
Having previously been made redundant, he may wish to consider taking out an accident, sickness and unemployment (ASU) policy with cover potentially from day one to ensure coverage for the first 52 weeks.
I would extend a word of caution on the unemployment benefit, which can be relatively expensive. If that is the case, then take a policy which is purely accident and sickness.
On his life and CI policy, if it was taken out recently, then I would advise that as life rates are so low he may wish to consider making no change here other than possibly lowering the level of cover if it is significantly higher than his liabilities - for instance, mortgage or car loans.
But if the policy is prohibitive on cost, then he should look at reducing or removing his CI cover, which is where the bulk of the cost is.
Matt Rann, Aegon
I would first check whether there is any redundancy cover that is in existence but has potentially been forgotten about. It is also worth enquiring whether the new employer has an employee benefit package, and to retest what is available from the state.
Regarding life cover, with premiums at an all-time low, I did wonder whether there have been any health issues. As a result, a key question is to ask about your client's health and, in particular, whether there have been any health changes since the existing plans were taken out.
It is also important to check out the new occupation. It could be that if the new role is less manual, or less accident-prone, then a premium saving could be made with new underwriting.
Focusing again on occupation, we need to consider whether the new job has any short-term prospects of salary increases.
