My client, Steve, has just asked me to perform an overall review of his protection needs following the start of his new family. He's only 32 and has an existing 10-year-old critical illness policy (25-year term). Should I recommend keeping this for the better coverage it provides, or given his age should I re-broke him for a cheaper one?
Alan Lakey, Highclere Financial Services
It is pretty much accepted that there are noteworthy differences between today's plans and those of 10 years ago. A number of the policy wordings used back then are superior although there are many conditions covered today which were not included then. There is an element of trade-off with the major areas of concern being early stage prostate cancer and coronary angioplasty, both of which were fully covered by the majority of companies in 2000 but only available in a limited form today.
Cost is an important consideration but we should really be focusing on quality and value-for-money - in any event, the premium difference is not likely to be significant. The decision on re-broking will very much depend on the existing plan, what it covers and what it doesn't cover. Many bancassurer and direct sales plans offered poor coverage and there may be circumstances where switching from one of those to a new-style plan might be best advice.
A major change of circumstances is always a trigger to re-evaluate cover and it is rare for existing plans to fit the required format for family protection. The existing 15-year term may not be appropriate for family protection and the question of cover for his partner must also be taken into account. Another important factor is his state of health; if it has deteriorated then it would be more appropriate to make use of any guaranteed insurability option that is available on the existing plan and, if appropriate, top up with a new plan.
Chris Pollard, Bupa Individual Protection
There are a number of factors that need to be considered when reviewing Steve's protection needs, one being that his policy has been in force for 10 years and survived three ABI reviews resulting in changes to Critical Illness definitions. Another factor for Steve will be whether his insurability, either positively or negatively, has changed.
Given the new family, it is likely that Steve's review will identify a need for more cover and for a longer term than his existing policy provides.
Assuming his income protection and life assurance needs are fully protected, the focus will be his critical illness cover.
Firstly, it is important to establish the nature of his existing policy with regard to any premium guarantees and explore the possibility and cost involved in increasing the cover or the term. It might also be possible to exercise some contractual guaranteed insurability options.
Although Steve's existing policy will expire when he reaches age 47, Steve should be cautious about replacing his existing policy as it provides full cover for prostate cancer whereas current products exclude less severe prostate cancer from a full pay-out. If he is unable to increase the term or cover on his existing policy I recommend a second policy.
Although Steve would then have two policies, his family could benefit from having two separate children's cover arrangements, as well as the different options and features that exist in many of today's innovative products.
Linton Penman, Unum
Critical illness plans have seen a good deal of change in the last 10 years, both in terms of the definitions of what's covered (and what's not), and cost.
Switching solely on the basis of cost savings (if there are any, as he is 10 years older the savings might not be so great) could be a false economy.
So, a close comparison should be made of the cover being offered under newer products, and taking a look at severity-based products, such as those on offer from PruProtect and Unum, is advisable.
Considerable savings (or more appropriate cover for the same cost) can be made, for example, under Unum's Elixia 123 plan by selecting higher benefits for the conditions that Steve is most worried about and lower benefits for the relatively less disabling conditions that would have much less of a financial impact on his own and his family's lifestyle.
But, first and foremost, ask Steve to think about his priorities - with a young family they will have changed considerably from 10 years ago.
Does he really need CI cover in the first place? Is a lump sum payment going to meet his changed circumstances? With a young family totally dependent on his earnings, income protection has to be worth a closer look.
Our own research suggests that the average worker could only survive financially for around four weeks without their full current salary.
The likelihood of someone taking long-term sickness absence from their work is also far higher than suffering a critical illness (as defined under a typical CI policy).
