‘Critical Illness Definitions’ | Case Study: Gordon & Sarah

Critical Illness Definitions explained.

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Background:

‘Critical Illness Definitions’ Case Study

Critical Illness Definitions Typical Case Study: Gordon is age 32, an Architect on £35,000pa salary. He is married to wife Sarah age 30, a part time Teacher on £22,000pa. They have 1 child age 3 & in nursery when Sarah is working. They are currently renting but due to exchange contracts on a property in the next few weeks. 

Gordon & Sarah are taking out a £186,000 joint repayment mortgage over 30 years via their bank at 4.99% fixed rate 2 years. Gordon has no lifecover via work but his employer provides him some sickpay cover upto 3 months. Sarah has 2 x salary death in service with work plus 6 months full sickpay.

Sarah asked the bank adviser about Critical Illness policies which she had heard about. The adviser explained about them & overview of the Bank Insurers policy definition of critical illness. Then suggested insuring the new mortgage with life & critical illness, so if either were critically ill or died it could be repaid.

The bank’s Insurers quoted what they thought was a very high monthly cost of £150pm & policy health definition exclusions. The bank adviser also quoted other protection areas. However, they were unaware their bank only dealt with 1 Insurance provider. 

Gordon & Sarah have raised BMI kg. Gordon’s father had a heart attack. Sarah’s sister had a recent breast cancer scare & her Mother had a stroke. They are both aware therefore of the importance of critical illness insurance should their circumstances change. 

Critical Illness Defined | Enquiry:

Sarah firstly looks at what does MSE Martin Lewis say about critical illness cover and their pro’s & cons on Critical Illness policy definitions.

She then decides she need to seek professional advice & hopefully getting a Critical Illness deal with no clear definition exclusions. She makes an enquiry through our website about what’s Critical Illness Cover and ‘definition of critical illness’.

We call her back after work & she puts us on loud speaker so Gordon can also listen in. We then explain who we are and then have a good chat about their current situation, requirements & needs. 

They both listen to our advice & thought process. We explain the critical illness cover marketplace can either offer cheaper basic definitions of just cancer only claim conditions. We also re-explain what is the difference between critical illness and terminal illness ie; critical illness is paid on diagnosis and survival, whereas terminal illness means paid on diagnosis that you will sadly not survive.

Alternatively, other UK Insurers may offer far more comprehensive critical illness definition uk packages. Some may offer between 40 – 100+ critical illness definitions ie; may also cover say heart attack, stroke and MS. Then there are also plans that cover serious illness / critical illness cover meaning options to make multiple full or partial claims & still retain some core benefits ie; address any issues does critical condition mean death claim only.

Insurers may also offer child critical illness cover as a percentage of the main adult cover levels, either as an extra cost or inclusive. Also joint 1’st claim means that potentially upon the first person to claim, their policy would end. They now give us an affordable budget of around £75pm [Or 50% of what the bank said it may cost them re their policy re ‘critical illness meaning’].

‘Definition of Critical Illness’ | Advice & Research:

After a fair & personal analysis, we also recommend they jointly insure the new £186,000 joint repayment mortgage with joint 1’st claim death & earlier critical illness cover over 30 years mortgage term with child critical illness cover. The premiums were to be none-reviewable and protected if either was off work through an accident or sickness. 

Both Gordon & Sarah give us their health & lifestyle backgrounds [ without a full application being made at this stage ]. They also advise which Insurers the bank used that gave them the £150pm quote, as we think the premiums have been medically rated due to their BMI. This will enable us to quickly establish which providers maybe worth approaching & who may potentially offer the best rates re what does critical illness mean. 

We check the Insurers in the marketplace offering more comprehensive life & critical illness definitions off our panel given the above considerations. The 2 key factors are: Raised BMI KG & Parental health for what is considered a critical illness.

Recommendations:

After our pre-sales underwriting research, we find there were just a few Insurers that would offer Life with earlier Critical Illness cover at standard rates for their BMI but only 1 Insurer who would also not exclude any critical illness definitions due to their family history.

Their £186,000 Mortgage Protection decreasing quote over 30 years came to £65pm for a joint 1’st claim critical illness plan covering around 40 benefits. However, the same Insurers offered the option to upgrade to a far more comprehensive critical illness cover with over 90 benefits for £77pm. This policy will reduce at 7% meaning initially there will be 2% excess over their fixed 4.99% rate but sufficient in case mortgage interest rates rise in the future. Premiums are jointly protected if either was off sick after 6 months.

We email these options, a copy of the Insurers Key Product Features plus specific critical illness quotes, definitions & our own legal disclosures. We call Gordon & Sarah back to discuss our findings which they are delighted about. They decide to just go ahead with the cheaper £65pm mortgage protection option which included child cover at no extra cost but not look at other protection insurances yet until they have moved in & fully settled. We discuss benefit of a suitable joint split trusts for the life insurance cover part, if they both sadly died together & help avoid any probate & Inheritance Tax IHT issues

We help over the phone to complete & apply for that Insurers policy via our broker systems now completing the questions re health, lifestyle & family history. 

Shortfall Options:

In this process we discussed & recommended for Gordon & Sarah the following to also consider. 

• Option of slightly cheaper reviewable premiums but that meant the price could go up in the future. 
• Lower interest rate of 4.99% on the policy which meant it would match their interest rate for now but not if rates rise in the future. 
• More comprehensive critical illness cover definition package for both adults & children – plus multiple claim facility
• 2 x seperate family lifecover to help pay the ongoing bills (after the mortgage is repaid) 
• Lump Sums or Family Income Benefits options
• Income Protection PHI policies for both to dovetail their employers sickpay
• Unemployment Cover for mortgage payments
• Buildings & Contents insurance cover for new home
• Both make wills having a young child
• They currently discounted all these various options but may revisit them in the future

‘Critical Illness Definitions’ | Conclusion:

In this ‘Critical Illness Definitions’ example case study, Gordon & Sarah are pleased to now have joint mortgage covered by joint 1’st claim lifecover and critical illness. This is at an affordable price & importantly with no definition exclusions. They both however fully understand the protection shortfalls above we identified though.

We help arrange their underwritten insurance policy via a competitive Life Insurance Broker deal with the Insurers. We then send a fully documented report afterwards explaining their various demands & needs and what defines critical illness for their benefit.

Both agree it’s OK for us to make a note to recontact them in the future re this matters once they have settled in and checked their regular budgets again.  

‘Critical Illness Definitions’ Example Case Study | Article by Martyn Spencer Financial Adviser (2024)

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