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?
If not, then it certainly makes sense to reduce the income protection cover. Whether this reduction matches his entitlement under his new salary is rather dependent on his employment prospects, as outlined earlier.
Finally, there will be small pot of money that is freed up by the reduction in the income protection premium. If the client has outstanding debts and has dependants, I would revisit the affordability challenge with regard to life cover.
If this is still unaffordable, then I would look to use the extra money to pay off some of the outstanding debt.
Rob Waller, Future Life
This unfortunate scenario is being faced by many people at present. With this client, the devil is going to be in the detail.
The simplest way to deal with the situation – especially if there have been health issues since starting the policies – would be for the client to go to his insurers, explain the situation and get the sums assured reduced to a level that was appropriate for his new income and affordability.
An alternative would be to look at a new policy for each need which could prove beneficial to the client. But in this case, it is the detail that needs careful scrutiny.
It will depend on which insurers the policies are with, the terms of those policies, when they started, the relative premiums and the likelihood of having conditions excluded on the new plan.
Critical illness plans have generally improved during the past year and the client could benefit from a change to get improved definitions, partial payments for certain conditions and more illnesses covered.
Friends Life’s new product is one example of this recent improvement in the terms offered to the client for critical illness cover, with more ABI+ definitions such as stroke, multiple sclerosis and third-degree burns alongside many other illnesses now covered.
My advice to you is to get all the policy details and put in some thorough research. Only then should it be clear what course the client should take to help him adjust to his new situation.
