A couple in their early 40s were referred to us by their accountant. The husband was self-employed and had suffered a major heart attack in November 2001, after which he was off work for six months. He returned to work in June 2002 and wanted to insure himself. He had approached two insurers and another IFA without success. Could we help?
The client was a heavy-smoking workaholic until his heart attack. He had seen insurance as dead money and, beyond a joint-life £87,500 mortgage protection policy required by his mortgage lender, he had no life insurance.
Now 42, he was keen to protect his wife and young children in the event that he suffered a further heart attack and died. He had applied directly to several insurers but had been declined.
He had applied for lump-sum life insurance of £100,000 lasting for 13 years until his youngest daughter was 18.
Our first objective was to establish exactly what level of life insurance he and his family needed. The mortgage protection insurance would settle their mortgage but it would not settle their debts as the couple had taken on a small secured loan to support them during his time off work.
Having adopted the “my business is my pension” approach, the client had no pension fund to leave to his family. During his six months off work, his business had foundered so he did not even have that reserve to pass on.
The mortgage would be settled on either of their deaths, so the main priority was to settle the modest loan and create income. Rather than just use policies providing lump sums, the obvious solution to create a tax-efficient income on death was family income benefit.
Having examined the family's outgoings and noted that the monthly mortgage costs would cease, we agreed that the couple needed a lump sum of £12,000 to settle the secured loan and an ongoing net income of £1,500 a month.
While the cover should ideally last for 13 years, I explained that if we had to use Lloyd's underwriters, we might have to restrict the term of the policy to 10 years. Finally, if the client's wife died, he would have to make arrangements to take care of the children, so we agreed that the policy should be taken out on a joint-life, first-death basis between them.
The clients also wanted to insure themselves against critical illness and to provide an income in the event of long-term disability. I explained that this would be almost impossible to place on the basis of what they could afford.
Before approaching any insurers, I obtained full details of the client's medical history following his heart attack from his GP and the hospital treating him, including a summary of the notes, medication, cardiac consultant's letter and cardiac rehabilitation department discharge summary.
Armed with this essential information, I bypassed the usual insurers and approached a number of Lloyd's agencies, including Cassidy Davis, Lutine and Wren, and one specialist impaired life placement company, Pulse. Finally, as I have good experience of its underwriting department and was looking specifically for family income benefit, I approached Scottish Provident, although, with the reorganisation of the Abbey National IFA function, this was not easy.
Following this initial round of enquiries, I received positive responses from Wren and Pulse, although they required more detailed and recent information before they could offer terms. They put forward lump-sum life insurance proposals and Pulse was able to provide indicative terms and premiums.
I then spoke directly to the underwriting manager at Scottish Provident, who had gone through the medical information we had provided. Based on the information supplied by us and subject to a further GP's report, it would be able to offer family income benefit and the lump-sum life insurance required, although the client would be heavily rated. Given his past experience, the client was very happy to proceed on this basis.