Personal and Corporate Protection

Let Eastwood & Partners (Financial Services) Ltd  guide you through the maze of Life assurance and Health insurance  related products and help you determine those you may need. The details herein are for the most common areas.

The reasons for having life assurance can be one or all of the following:
• Repay mortgage or other debt
• Family Protection
• Business Protection – Shareholder/Partnership/Keyman
• Potential Inheritance Tax liability 
 

Life assurance can be divided into two basic types - policies that offer protection only and those which have an investment link. Protection-only policies (usually described as term assurance), pay out if you die within a specified period and have no encashment value. Investment-linked life assurance include  'endowment policies' and 'whole of life policies'. Even these two types of Investment-linked Life Assurance can have very different aims.

Consider who needs to be insured. If you are part of a couple and require the cheapest premium policy, the natural thing would be to insure jointly (joint life basis) however for a relatively little amount extra you could insure yourselves separately (single life basis) and if you both were to die within the term double the benefit would be paid to your remaining beneficiaries.

There is also the subject of Trusts to consider. In most cases, your policy is paid out free of income tax on your death, however the benefit will form part of your Estate for Inheritance Tax Purposes and may inadvertently leave you or your partner with an Inheritance Tax Liability. When you die, the Capital Taxes Office wants to know how much you are worth? They will investigate the value of your Estate and only release monies when they are satisfied anything owed to them is paid. By writing your life policy in Trust, the beneficiaries are paid as quickly as the Life Company can turn around the claim.

_{HOW MUCH COVER DO YOU NEED?}
Life assurance is a subject most people don’t like to think about, as it makes them face up to the reality they are mortal. If you have a family and need to provide for them, it is important to think about the effect on them if you were to die. Even if the mortgage is paid off, would this really be enough to keep the wolf from the door when you are gone?
Does £100,000 seem like enough? It is a nice round sum and it sounds like a lot of money but once the mortgage is paid off there will still be other bills (council tax, gas, electricity, food etc etc) that will continue to come in once the mortgage is repaid.
Some life assurance experts will suggest you consider a policy that covers 20 times salary. The idea, based on an assumed interest rate of 5%, is that this lump sum would provide an income equivalent to salary. However if you are young or only starting out in your career, would this be enough, when taking into account your full potential earnings?

_PREMIUMS
You can select at outset if you want the premiums to be guaranteed for the term of the plan. Reviewable premiums are cheaper to start with but it is difficult to estimate by how much the premiums will rise when they are reviewed and this will be dictated by the chosen insurer.

_{WAIVER OF PREMIUM BENEFIT (Premium Contribution Insurance)}
This option can be added to most types of life assurance policies and is designed to ensure your monthly premiums are paid if you become unable to work due to illness or accidental injury. This benefit is normally deferred for the first 13 or 26 weeks of your incapacity and will stop on the earliest of: your return to work, the policy ending on payment of the death benefit, the policy anniversary before your 60th birthday or the end of the benefit term.

PROTECTION ONLY POLICIES
You can select at outset if you want the premiums to be guaranteed for the term of the plan. Reviewable premiums are cheaper to start with but there is no way to estimate by how much the premiums will rise when they are reviewed. 
 
Level Term Assurance
This type of cover protects you for a given term for a fixed benefit. The amount of life cover chosen at outset will be paid whether a claim is made in the first year of the term or the last year. Quite often a payment would be made on the diagnosis of a terminal illness before the last 18 months of the plan, where you had 12 months or less to live. This type of protection is suitable for family protection and Interest Only Mortgage debt, where the level of debt on the mortgage does not decrease as the years progress.
 
Increasing Term Assurance
This type of cover protects you for a given term for an increasing level of benefit. The amount of life cover chosen at outset rises annually by a predetermined factor, normally Retail Price Index (RPI). This is known as “indexation”. The premium will also increase by the same factor. By selecting indexation you are protecting the purchasing power of your selected benefit. This is suitable for family protection and some forms of business protection.

Decreasing Term Assurance
The least expensive of the Term Assurances, Decreasing Term Assurance does what it says on the label. The level of benefit decreases as the term of the policy runs; the premiums do not however reduce. The premiums are fixed throughout the policy term, and the premium level is lower than that of Level-Term Assurance as a result of the decreasing benefit. This type of life assurance is commonly used to protect Capital & Repayment mortgage debt. Typically the policy reduces the protection assuming a Mortgage Interest Rate of 10%. Many are paying mortgage interest at around 5%, and providing interest rates do not go over 10% the benefit should reduce slower than the mortgage debt, ensuring repayment of the mortgage debt in full. The actual rate available will depend upon your circumstances. Ask for a personalised illustration.

Family Income Benefit
An often-overlooked type of cover, Family Income Benefit protects a level of income for a fixed term. The amount of income chosen at outset will be paid for the remainder of the term of the plan. Often the term is set to protect you until your youngest child is 18 or 21 but would be tailored to individual circumstances. 

Renewable Term Assurance
This type of Term Assurance gives you the option, at the end of the original term, to extend the policy for a further term, without the need for Medical Underwriting. The new premium will be based upon your age at the time you take up the option. This type of cover is initially relatively inexpensive, but the premium will be higher than for ordinary term assurance and could rise substantially at the time of renewal.

Convertible Term Assurance
Like Renewable Term Assurance, this type of term assurance contains an option at the end of the term. This time it is to convert it into an endowment or whole of life policy without the need for a medical. The option must be exercised before the plan ends. The level of protection cannot be increased upon conversion and although your health is not taken into consideration at the time of conversion, the terms offered will be based on your age.

_{INVESTMENT LINKED POLICIES}
As well as paying out on death, these build up an investment value that may be cashed in during your lifetime.

Endowment Policies 
Many are familiar with Endowment Policies and have been selling or surrendering them due to disappointing investment returns. An Endowment Policy is designed to return a specified target sum of money at the end of the term. If however the life assured dies during the term of the plan, a specified lump sum benefit would be paid. These policies can be expensive and as some of the premiums are used to provide for the life assurance element, the full premium is not be used for investment purposes.

If you are considering surrendering your Endowment or think you have cause for complaint, speak to Eastwood & Partners (Financial Services) Ltd before you do anything. There are alternatives to surrendering your Endowment and surrendering may not always be the appropriate option.

Whole of Life Policies
A whole of life policy is another policy, which does exactly as it says. It covers you for the whole of your life. When the inevitable happens, providing the policy is still in force, it will pay out a death benefit. Although they can provide a surrender value, they should not be used for investment purposes due to the deductions made for the death benefit.
As payment of the benefit is inevitable Whole of Life policies tend to be more expensive than Term Assurance policies for the same level of cover (it depends on what age you are when you start the plan). Each premium is made up of a mortality element and a savings element. The savings element should build up an investment fund to pay out the benefit on death. The performance of the underlying investment Fund for Whole of Life Plans is important, as the cost of future premiums depends of fund performance.

If you are worried about investment risk, and increasing premiums there are Whole of Life policies available, which do not rely on fund performance however, these do not acquire a surrender value.

HEALTH INSURANCE
It’s not until you need to make a claim you realise just how wise investing in health and medical insurance can be.

_{PRIVATE MEDICAL INSURANCE (PMI)}
PMI covers the costs of private medical treatment for curable short-term medical conditions, referred to frequently as 'acute conditions'. PMI includes the costs of surgery, specialists, accommodation and nursing at a private hospital or in a private ward of an NHS hospital.
The premium is normally based on your age and the type of cover required. Discounts can be applied by taking a voluntary excess on claims; a bit like car insurance. The contracts are reviewed annually and are likely to increase with age. Some providers have an age limit of 65-75.

The way the plan is set up can affect the premium. The most common and inexpensive way to start a new PMI Plan is by a Moratorium. This type of policy excludes for all pre-existing medical conditions going back typically five to ten years being treated in the initial 24 months of the policy, in which time no consultations or treatment must be received.
After expiry of this period, any eligible condition can be treated. If any pre-existing conditions are ancient history, then this method of taking up medical insurance can be very cost effective.

Some companies will offer applications against a full medical questionnaire, which means you know exactly what is excluded from the start and this is the way our firm prefers to advise.

The plans on offer usually come in two ways, Standard and Comprehensive cover.
A Standard Plan covers hospital or emergency treatment. It will include 'in-patient' and 'day-care' treatment only. Comprehensive Plans may offer additional coverage including such care as 'outpatient treatment', dental treatment, complementary medicine, spectacles and personal accident cover.

You should understand the limits of your plan to avoid disappointment when making a claim. In general, PMI Plans do not cover chronic or critical illness which cannot be cured, for example stroke, Parkinsons disease or diabetes. However, in a crisis, most PMI policies will pay the cost of treatment for stabilising a patient and returning them to their previous level of health, when possible.
If you receive cover as a perk with your employment and you leave your company, most insurers will offer you and your family cover, but it may be on differing conditions and different premiums. The same sometimes applies if your partner has been covered via this method and they subsequently die.

Hospitals
In the UK, insurers have adopted a system of grading hospitals A, B or C levels, with A grades being the best and most expensive. Lists of hospitals covered under a PMI Plan are usually available with any quotation and should be studied carefully before deciding. You do not want to be sent to a hospital in Inverness if you live in Yorkshire.

Exclusions
Benefits and exclusions are a vital area of reading under a PMI plan. All policies carry a list of general exclusions from cover and some companies exclude more or may place financial limits on certain benefits offered, particularly benefits such as routine dental cover or maternity cover. Common exclusions are:

_{CRITICAL ILLNESS PROTECTION}
The reasons for having Critical Illness protection can be one or all of the following:
• Repay mortgage or other debt
• Help with medical expenses
• Family Protection
• Business Protection – Shareholder/Partnership/Keyman
 

Critical illness insurance pays out a lump sum on diagnosis of a range of serious illnesses. A “Stand Alone” Critical Illness plan will only pay out providing you survive a minimum of typically 28 days after diagnosis. Normally however, it is less expensive to purchase a Term Assurance Plan with Critical Illness benefit as an additional option. This way your Estate would receive the death benefit if you do not survive.
The conditions covered also varies from Provider to Provider, but they commonly cover core conditions as agreed by the Association of British Insurers (ABI), most also cover ABI additional conditions and some go even further. Some Cancers are not covered or depend on the severity of the condition. You will be advised before purchase, which conditions are covered. 
  

Examples of some of the further conditions covered by some Providers (Please note that no Provider will cover all of these)

It doesn’t bear thinking about, but it is worth noting that many Providers include Children’s Critical Illness benefit free of charge. This can be for example 25% of the benefit insured for the policyholder often limited to £20,000. This would be payable if your child was to be diagnosed with one of the illnesses listed and survived the waiting period. The number of children covered varies from Provider to Provider. Typically children are covered from age 6 months to 18 years.

With Term Assurance, price is the driving factor in choosing a Provider, with Critical Illness benefit however, the decision on which Provider to choose should be based on both the conditions covered and the price for the cover. Eastwood & Partners (Financial Services) Ltd can guide you on the quality of the protection on offer.

Advances in medicine have resulted in more people surviving serious illnesses such as Cancer, Heart Attack and Strokes. You could however be left with reduced mobility and the inability to return to your usual line of work. If you have sufficient Critical Illness protection you could pay off your mortgage, which is normally your biggest monthly outgoing. If you do not have a mortgage you could use the money to adapt your home to your new lifestyle or pay for medical treatment or drugs. A good example of where Critical Illness benefit would be a lifesaver is to purchase drugs in trial, which many patients are having to take National Health Service (NHS) Trusts to court to have prescribed. For Example, the new drug which helps slow down the onset of Alzheimer’s Disease, not all but some providers would cover this condition.

Buy now while stocks last?
At the end of December 2002 the definitions used for Critical Illnesses were changed. Many providers took conditions such as Angioplasty off their lists and the severity of Prostate Cancer increased from 2 on the Gleason Score (a score for rating the stage of the illness) to 6. Anyone thinking of replacing a Critical Illness plan should always check the conditions available under the new plan verses the replacement.
The Industry and Association of British Insurers are again reviewing Critical Illness Protection and it may not be available in its current form in the future.

Premiums
Like Term Assurance you can choose between guaranteed and renewable premiums. It is difficult to predict to what extent the premiums are increased at review, so guaranteed premiums, although more expensive initially prevent the risk of premiums increasing to an unaffordable level.

Payment of Claims / Disclosure
Critical Illness Protection has had some bad press with stories of Providers not paying out claims. Frequently however the reason for a rejection of a claim is lack of disclosure of information at application. You may think it’s ok to tell a white lie on the application about your weight because you’re a bit embarrassed to tell anyone, however if a claim is made the Provider will want to look at your medical records. If it is obvious from the records you lied about your weight, they may decline your claim.

Another common mistruth is declaring your smoker status. You may save a few pounds on the premium by stating you are a non-smoker at the start but this is a common mistake. Those few pounds saved each month could cost you the full benefit when you claim. Some Providers randomly request applicants to prove they are a non-smoker. In case you are in doubt, you are a non-smoker only if you have used NO tobacco products in the preceding 12 months. If in doubt about whether a past medical condition is relevant or not, put it on the application form and let the Provider decide.

If you do not want to discuss your private medical history with your Financial Adviser, there is now a Provider who has an application which requires no medical disclosure. You complete the application and a representative from the Provider calls you, at a convenient time, to take you through the medical questionnaire.

Waiver of Premium Benefit
This option can be added to most Critical Illness policies and is designed to ensure your monthly premiums are paid if you become unable to work due to illness or accidental injury.
This benefit is normally deferred for the first 13 or 26 weeks of your incapacity and will stop on the earliest of: your return to work, the policy ending on payment of the death benefit, the policy anniversary before your 60th birthday or the end of the benefit term.

_{INCOME PROTECTION INSURANCE  (Permanent Health Insurance)}
Also know as Permanent Health Insurance (PHI), Income Protection provides cover in the event that the insured is unable to work due to illness or injury. You may think your employer will continue to pay you if you were unable to work due to sickness. Realistically, not many employers would pay your salary, even at 50% for an indefinite period of time. What if you’re self-employed? If you were the main resource of your business, how would you manage even after 4 weeks of sickness?
Would Statutory Sick pay of £72.55 per week or Incapacity Benefit of between £61.35 to £81.35 per week be enough to pay your bills? You may possibly be entitled to other assistance but do you think you could live off such a small sum for an extended period of time?

Income Protection insurance is different to the short-term Accident, Sickness and Unemployment covers you may have heard of. These are a short-term solution, as they protect you between 12 and 24 months whereas Income Protection insurance is designed to pay you until the earlier of; the term of the plan (up to age 60 or 65), your return to work or your death. You may think your Critical Illness policy would have paid out if you were ill but often this is not the case. Take for instance back trouble. This is a very common condition but is not covered under Critical Illness plan. It can mean incapacity for years, even permanently. Income Protection would help in such circumstances.

How does it work?
You are allowed to protect up to 75% of your income (this can include regular dividends if you are a Company Director) however any Statutory Sick Pay or Incapacity is included in this maximum, so most Providers limit the benefit. This can range from 50% - 60% of your income.

Please note the benefit payable from this type of plan is tax-free.

At the start of the plan you elect a waiting or deferred period which can range from 1 to 52 weeks. The longer the deferred period the less expensive the premium. After the deferred period the plan will start to pay out if your claim is successful.
The term of the plan should also be considered at the start. You can match this until your mortgage is repaid or until your retirement age, be it 60 or 65.

Like other insurances exclusions can apply such as:
• Alcoholism or drug abuse
• Normal pregnancy
• Going against Doctors’ orders
• Civil commotion
• Aids through self harm

It may seem important to chose a provider offering the highest level of income or the lowest premium, however the number and type of exclusions in the plan should also be considered. One Provider for example only excludes Normal Pregnancy, they are not always the least expensive, but certainly provide a more comprehensive plan.
 

Premiums
You can choose between guaranteed and renewable premiums. It is difficult to predict to what extent the premiums are increased at review, so guaranteed premiums, although more expensive initially, prevent the risk of premiums increasing to an unaffordable level.

Indexation
You can choose at outset to have an increasing benefit. Indexation is recommended for this type of plan to protect the purchasing power of your replacement income. If indexation is elected at the outset, the premiums and benefit would rise by the chosen index. This can be a set amount, Retail Price Index or by the National Average Earning Index.

_{SERIOUS ILLNESS COVER}
A new type of protection is currently being marketed by one of the UK’s biggest Insurers. This product takes Critical Illness protection to another level and could potentially pay out on one or more of 140 conditions.
It is a complex product and Eastwood & Partners (Financial Services) Ltd will be happy to guide you through its features and benefits and assess whether it is right for you.