As Independent Financial Advisers (IFAs), it goes without saying that we are keen advocates of financial protection provision. We consider a robust portfolio to be essential to ensuring that other forms of planning we undertake for clients, such as savings and investment or retirement planning, are not significantly and detrimentally impacted by an event such as death or the occurrence of a critical / serious illness.
A typical client scenario that many people may relate to is that of a couple where both parties are in full time employment, they have a family, a house and a mortgage. To protect their mortgage they have effected a decreasing life and critical illness (CI) mortgage protection policy to cover their capital & interest repayment loan.
Never did they believe that one of them would be the victim of a critical condition. However, it does occur resulting in a payout of the benefit to enable the repayment of the debt. Despite this, a need for continuing life and critical illness cover may remain but the policy will terminate once the benefit has been paid.
This predicament raises a number of issues. Fortunately, there is no problem in securing replacement cover for the other individual if they have remained fit & healthy. However, this might not be the case. Nonetheless, they may be a number of years older and the cost of replacement cover will be commensurately higher.
Even if a remarkable recovery is made as a result of excellent medical care, the individual who has suffered from the critical condition will almost certainly become uninsurable for the foreseeable future at the very least. If terms can be secured for life cover in the future, these will likely be at a significant rating to the standard premium. With regards to critical illness, they will find it almost impossible to secure replacement cover. Having suffered one condition does not preclude them from being diagnosed with any one of the multitude of other critical illness conditions, however, generally insurers take a broad brush approach with regards to offering CI cover and are reluctant to offer exclusions of particular conditions.
A solution that would solve these problems from the outset is a plan from a leading UK protection provider, which provides the following: –
- A market leading 161 conditions which is by far the most comprehensive cover. Furthermore, from time to time they endorse their policies with the addition of new conditions to ensure their coverage is as up to date as possible. This level of cover and approach makes it likely that the insured will remain comprehensively covered for the policy duration.
- A life / critical illness cover ‘buy back’ facility. In the event that a critical illness occurs, and a partial or full payout is successfully claimed, the cover will be topped back up to the chosen level of buy back and the plan will continue at the existing premium level. This means that both life cover and critical illness cover can remain in place should a critical illness payout be made. Indeed, the way the facility works with the insurer’s partial, severity based payouts can result in a series of payments for a specific condition if one were to experience an illness that worsens over time.
The conclusion to perhaps be drawn from this is that given the presently unique approach offered by this plan, it provides a dual opportunity to potentially secure a significant improvement in critical illness cover for those that have it already and also avoids the problematic consequence of a critical illness payout, namely uninsurability. Just because a policy has paid out, one should not always conclude that the need for the cover goes away. Far from it, particularly if an individual were to be struck down with a critical illness at an early age.
Feel free to contact Steve Prosser for an informal discussion regarding your financial protection planning.