Getting the best protection for a family

It is also worth considering the value and trade off in premium cost of using index linking to protect against loss of value by inflation.

When it comes to what level of cover is required, Bonnie Burns, product director of Legal & General, says her company has been researching the value of a parent for more than 30 years. Parents may tend to take their wages into account when deciding on a level of cover, but Ms Burns says they often do not consider the unpaid domestic work they do.

It found £31,627 was the value of the domestic work a mother does each year. For father’s it is £23,971, which is 13 per cent more than it was in 2011.

Yet Legal & General found less than a third of parents have any critical illness cover (29 per cent), income protection (14 per cent) or family income benefit (12 per cent).

Its research also revealed parents spend three times more on pocket money and treats each week than they do on insurance.

When taking out a life insurance policy to protect dependants financially in the event of the policyholder’s death, Peter Hamilton, head of retail protection propositions of Zurich, says the term should be carefully considered.

He points out the plan is typically established for a fixed period of time, known as the ‘term’, normally between one and 50 years.

When considering the term, considerations might include intended retirement date, or when children might become financially independent. Term cover might remain level or decrease over time if being used to cover a repayment mortgage or loan.

As the term progresses, Mr Hamilton points out the cash sum payable decreases, roughly in line with the amount of debt remaining.

Different companies will include different features. For example, Mr Hamilton says there may be the opportunity to link the sum insured to the AEI or RPI in order to protect against the impact of inflation or to increase cover by a fixed percentage every year.

Some providers will offer guaranteed insurability options which enable customers to increase their cover, without further underwriting, on the occurrence of certain events, such as birth or adoption or moving home.

A critical illness policy pays out a lump sum if a customer is diagnosed with one of a number of listed critical illnesses. The amount paid out to a customer depends on how much cover they have paid for - and in some cases, it depends on the severity of their condition.

Some insurers make partial payments which means that eligible customers diagnosed with a critical illnesses covered by the product - usually in its early stages - will benefit from a pay-out which Mr Hamilton says is typically 20 per cent of their sum assured or £15,000 (whichever is lower).

Some will also give customers access to support and counselling services.

Getting it right for the client

Mr Hamilton says some clients may want basic cover at the cheapest price, others may want to have the most comprehensive cover available with cost not being an issue. Often a blend between the two is selected.

Mr Hamilton says clients may prefer a product from a brand they are familiar with or choose a company they perceive to be financially strong.

He says: “Common objections from clients may be they don’t want to go through a rigorous underwriting process, or that they are worried that if they suffer an illness the provider may not pay a claim.

“Underwriting requirements and claims history will become important here. The key is to establish what is important to the client.

“As far as critical illness is concerned, the best policy isn’t always going to be the one with the most conditions; it will be the one that closest meets your client’s needs.”

If the client has a set budget in mind, Ian Smart, head of product development and technical support of Bright Grey, says advisers may want to be able to get them the best cover for the amount of money they want to spend.

He says there are a number of expert research systems which will help in choosing the best policy for your client’s needs, such as Defaqto and CIExpert. Industry portals – such as Avelo, Assureweb and Webline – will also be able to help with premium rates, Mr Smart points out.

He says: “Ask clients if they want their benefits to keep track with inflation, i.e. they increase each year. They may want family income benefit – monthly benefit payments rather than a lump sum payment – and therefore you will be able to pick the providers that are best for this type of cover.

“You may want to find out what a provider’s history on claims paid is and check their financial stability, which you should be able to source from the provider’s website.”

Finally, Mr Smart says writing your client’s protection plan in trust means a claim will be paid to the beneficiaries more quickly and in most cases won’t be liable for inheritance tax. He says it will also show that you have their best interests at heart.

Mr Smart says: “Almost all policies that include benefits payable on death and even critical illness polices would more often than not benefit from being written in trust.”