Critical Personal Protection Issues - Quality of Insurance Cover

First of all - the quality of your protection policies.

Protection - the policy conditions minefield

Let's use an example. Dr Cureall, a family man with a large mortgage, has
decided it is high time he sorted out his protection requirements.

He wants to know what types of protection there are, and approaches us to
ask for advice.

We explain there are 3 types of cover:

.Life protection, paying out a lump sum or income over a certain period of
time if you die

.Critical Illness protection, a lump sum paid if you have a specified
illness or are totally incapacitated

.Permanent Health Insurance, an income paid to your normal retirement age
(or while you are ill) if you cannot work for health reasons

Dr Cureall decides he would like to cover all eventualities (next newsletter
explains why this is a good idea). The cover linked to the mortgage will be
a reducing benefit (he has a repayment mortgage), whilst the family income
benefit will be indexed to take into account of inflation. The aim here is
to pay off the mortgage and leave enough for his wife and children to
continue their lives without any financial worries.

So let's look at each type of protection:

Life Cover

This is the easiest type of cover to understand. It pays out a lump sum on
death and normally the policy to buy is the cheapest one the Cureall`s can
find. They may want guaranteed premiums, which means that the insurance
company will not increase their future premiums if they are paying out a lot
of claims and need to increase their premium to compansate for this. The
alternative is reviewable premiums.

Secondly, and crucially, the policies must be written under trust for the
beneficiaries. This means any monies will not form part of Mrs Cureall`s
estate, and therefore not compound any inheritance tax issue, but still
ensuring the Cureall`s will receive their money (potentially saving
thousands of pounds of Inheritance Tax).

In our experience, the majority of life assurance policies are not written
under trust.

Critical Illness

This type of protection has become more popular in the last few years,
particularly with a view to paying off debt. It is often taken out in
conjunction with income protection (PHI).

Since this form of protection is dependant on the number of conditions
covered and their wording, there can be a huge difference between companies.

Let's look at a couple of examples:

Heart attacks account for a large percentage of claims.
Many companies will insist on there being 'typical chest pain' present for
them to pay out amongst other criteria.
However, a small proportion of companies do not stipulate this and may be
more attractive.

Total Permanent Disability is seen as a 'cover all' if the condition does
not fit a specific illness listed in the policy conditions. So if Dr Cureall
cannot work then we could assume he'd be covered. Maybe, but not always.
Many companies specify in their occupation definitions that the claimant
must return to work if they are 'suited' to another job or even worse can
perform 'any' type of job.
Not very reassuring if you find you have this type of plan as a doctor or
dentist. Where possible, you should make sure the plan has an 'own'
occupation definition (which may not normally cost you any more money).

Permanent Health Insurance

This is a crucial part of protection. Whilst thousands of pounds have been
paid in claims over the years, you really do need to be aware of the
pitfalls:

. Own occupation not specified<br> . The classification of occupation
increases premiums to far higher levels<br> . Exclusions such as mental
illness<br> . No "waiver of premium" meaning you still pay your premium on
receipt of benefit<br> . Premiums are not guaranteed, meaning they are
vulnerable to increases<br> . A poor choice of deferment periods (when the
income starts to pay out)<br> . No option of indexed protection to protect
from the effects of inflation

It is interesting to note that out of the top 14 companies that would be
price competitive for the type of cover discussed, we would typically only
use 2 because of the quality issues!

The Financial Tips Bottom Line

It's likely you have bought one or more protection policies.

We're often surprised at how many doctors and dentists have policies with
small print NOT working in their favour. We urge you to check your policy
documents and make sure you're not paying for something that may not pay out
anyway. Over the life of a policy we're usually talking about thousands of
pounds, so don't put it off!

----------------------------------------------------
Ray Prince is an Independent Financial Planner with Rutherford Wilkinson
plc, and helps UK Resident Doctors and Dentists get the best deals on
mortgages, protection and investments, as well as helping them achieve their
financial objectives. Just visit http://www.medicaldentalfs.com to get your
free retirement guide. Rutherford Wilkinson plc is authorised and regulated
by the Financial Services Authority.