Sarah and her husband Carl are both 34-years old. Sarah works as a dentist and Carl is an IT manager. They have a combined salary of £95,000. They currently have mortgage protection payment insurance (MPPI), which they bought when they purchased their first house. It offers 12 months' cover. However, after finding out that Sarah is pregnant with their first child, they now wish to obtain more comprehensive cover. What are their options?
Jason King, Life Policies Direct
Carl and Sarah are right on the button here, as they have realised that while MPPI cover is easy to buy and offers valuable short-term protection, there are more comprehensive options available to them, given they both have low-risk occupations.
A better option for them would be IP, which will provide a continuing regular income until they are both fit to return to work, reach retirement age or die. The cover can be easily tailored to dovetail with benefits from their employment as well as their individual requirements, and can also offer an 'own occupation' definition of disability with few exclusions.
One important point is that IP does not include unemployment cover, so we would need to decide if this benefit is something they value, and then possibly replace this element elsewhere.
Maximum cover is about 50% of gross salary and is paid tax-free. On the assumption that they get minimal sick-pay benefits from work, we would look at a three-month waiting period with an indexed benefit of £2,000 per month each and work from there depending on their budget.
Sarah's pregnancy should not present any problems or exclusions, as long as she is not already suffering from any associated medical complications.
For Sarah, we recommend Liverpool Victoria, with a premium of £142 per month on a guaranteed basis. Carl's gender and lower-risk occupation considerably reduces the cost of his cover. Therefore, for him, we recommend Bright Grey at £43 per month. This plan also includes their Red Arc support service for policyholders, which is a valuable free benefit.
Paul Cowman, Prudential
Presuming the mortgage/re-mortgage was taken out after October 1995, the couple should plan for the eventuality that the state will not provide for the first 39 weeks of unemployment.
They should take a look at the MPPI cover to ensure that it covers the full mortgage term remaining rather than the first 12 or 24 months, and consider a combination of MPPI and/or IP. Sarah and Carl should also check any benefits supplied by their employers.
They need to plan for the loss of any earnings to retirement. The plan should be indexed in cover and claim to keep pace with increasing cover needs without the need for further underwriting.
The couple should consider life cover for their mortgage debt for the remaining mortgage term. Additionally, life cover for loss of income - ideally to the point at which they plan to retire, or as a minimum until their child reaches school-leaving age - should be considered, and should be written in trust to speed payment without probate and help with inheritance tax planning.
This is only part of the job, as a serious illness could change their lives forever. Both Sarah and Carl work, so the couple should think about IP.
We don't know if Sarah plans on returning to work following the arrival of their baby, but in any event unemployment cover for the main breadwinner should be considered. The cost of making changes to their house and meeting medical needs can be planned for through CI cover - again, written to retirement on both lives.
Rod McKie, Scottish Equitable Protect
In order to keep their premium costs down, Sarah and Carl should consider flexing the benefit types and amounts to suit their personal circumstances.
To protect their income in the event that either of them is unable to work long-term due to accident or illness, they should consider income protection (IP) cover. They can each cover up to 55% of their respective salaries. Covering 55% of income on a 26-week deferred period for Carl and Sarah would cost £48.54 and £107.80 per month, respectively.
When choosing a deferred period, they should consider whether to replace or complement their MPPI policy, and should also take into account any occupational sick pay arrangements.
If Sarah decides to take a maternity break from work after having the baby, she can use the career-break facility. They may want to reduce the benefit amounts to suit their budget, as they may not need to replace both of their full salaries.
A lump sum life with critical illness (LICI) policy would be appropriate to ensure their mortgage was repaid should either of them die or suffer a critical illness. Sum of £100,000 of joint life reducing LICI for a 25-year term on guaranteed rates would cost £57.93 per month.
Impending parenthood means Sarah and Carl should also consider taking out cover to provide them with a monthly income should either of them die or suffer a critical illness. Ideally, the cover should be set up to run to the child's 21st birthday.
A joint life, LICI family income benefit policy that will provide a £1,000 monthly benefit for a 21-year term would cost £54.51 a month.
