My client is a 48-year-old successful businessman with a wife and two children. He was a cocaine addict but has been through rehab three times and is currently clean. He also smokes. Having no protection at the moment, he is aware of the need to look after his wife and children. What are his options?
Simon Thomas, LSL Property Services
Medical underwriting on any drug or alcohol related symptom or condition is always more difficult due to the underlying effects that the addiction could lead to.
Life assurance underwriters are more reticent about this sort of risk than most other risks at present.
How long the male client has been free from addiction will dictate the type of cover available.
Most life offices are looking for a five-year addiction-free period but even then are only likely to offer cover with a mortality rating; usually they will look for a ten-year free period in order to provide full life cover.
One possible solution would be to implement a group life plan and income protection plan.
Any group plan is underwritten with a free cover limit, so the life office would not look at his medical history.
There are other stipulations, but with the help of the life office these can be easily met.
For group IP, an example scheme with ten members could attract up to £3,000 benefit per month, which multiplied by the number of members in the scheme would give £30,000 per annum of benefit per member.
Obviously this assumes that your client has staff and is happy to provide them with life and IP too.
There is an obvious need to cover the wife as well, but assuming she can be underwritten in the normal way, the main concern is how to cover the primary income source.
Ian Smart, Bright Grey and Scottish Provident
The history outlined is a good start but most insurers will need a lot more information to be able to consider the risk.
Key information required will include how long the client used drugs for and when did each period of drug use start and stop?
Apart from cocaine, the use of any other form of drugs or whether he has ever injected any drugs will be asked.
What is the duration that the client has been free of all drugs and what was the pattern of addiction and rehab and dates of rehab treatment?
When were these periods of drug use in relation to his marriage and dependants, for example, can these be taken as positive features in his recovery?
Other significant medical history such as stress, anxiety or depression would also be requested and if this co-existed during the periods of drug usage?
Most insurers would obtain a GP report and if the above information has not been provided on the application then a drug questionnaire will also be required.
If this proves satisfactory then further information such as a drug screen or hepatitis and HIV test may be required.
Many insurers may decline because of the multiple relapses, but if the case history appears positive then an initial postponement period of between three and five years from cessation of drug usage, followed by a moderate loading for life cover would be appropriate.
If the drug usage is over ten years ago this may reduce further to a small loading.
Mike Weedon, Life Cover for All
Suffering from a critical illness or dealing with an addiction isn't something we ever look at as a positive however, some good can come from it as it often makes clients think about their morbidity, mortality and more importantly, review their protection needs.
As the client is a successful businessman his family may well depend on his salary, therefore income protection (IP) may well be the number one priority, (this could be available providing the client has been addiction-free for five years).
Presumably he has already witnessed the damage an addiction can do to his family, work life and his health and will now want to protect his family's long-term financial position.
Family income benefit (FIB), and more specifically FIB critical illness (CI), could be used as an alternative to conventional life and CI.
It is a great way of reducing premiums and helping individuals to protect against the cost of specific outgoings and maintain the current standard of living.
The commutation option should be discussed in full and the purpose of this contract is to provide an ongoing monthly income if a lump sum is required life and CI would be more beneficial to the client as the commutation calculation is unfavourable, in comparison to the ongoing monthly income payable.
The use of FIB & FIBCIC is not only practical but relevant in the current economic climate. I am sure we all read articles insisting we should never sell on price which I agree with, however, some clients do have a fixed disposable income, which will be identified in the fact-finding process.
