Considerations for Critical Illness Cover

Most financial planners will have clients who stick in their minds when you talk to them about the things they have done that have made a difference to their lives. Douglas McCrea is no exception. “For me it was a couple of brothers, long-standing clients of ours who have both had heart attacks and have both had payouts on their critical illness policies we set in place for them. One actually had his while he was playing five a side football and decided he had better go in goals for a while because he wasn’t feeling too great.”

Douglas had initially dealt with these clients in the same way as he approached all his client meetings. “It’s a process we go through. We start with a blank canvas. It’s like a jigsaw. As part of the initial exercise you have to turn the pieces over, and each piece represents one part of their financial affairs. How many kids do they have, how much do they have in the bank, what are their plans for the future. It can be a pretty big jigsaw and it can take a while to put together. The brothers were self-employed and the main players in a small family business and it was very clear that if anything happened to one of them it would have a detrimental effect on the business and in due course it would have an effect on their income, and also on the survival of the business.”

With that in mind Douglas explained the need to ensure that there were provisions made if something happened. “We looked at it for each of them as individuals but we also had to look at the business collectively and we agreed that critical illness cover was appropriate for both of them. There was obviously a bit of reluctance when it came to buying it though, no-one likes paying for insurance whether it’s car insurance, house insurance of personal insurances like critical illness.”

Once they had agreed that there was a gap that needed to be filled it was a case of looking at the best way to do it. “We had to look at what we thought was a sufficient sum for each of them to stop drawing income from the business if they were ill and unable to work, but also from the point of view of them being able to pay all of their ongoing expenditure. They weren't interested at that stage in being able to pay off their mortgages or other big debts, and to be fair I think there was still a degree of reluctance even when they took the policies out. They appreciated the fact that there was a gap, they appreciated that something was better than nothing, but they were wary of the cost. As is always the case there were other considerations and one of them was moving house at the time so that was a drain on available income.”

In this case it’s probably one of the best decisions the brothers ever made. “It helped them to get by. Fortunately they were both back at work within six months and it helped them with cash-flow and meant they didn't have to take too much money out of the business. This reduced the pressure. It gave them breathing space. They didn’t use the money to repay debt; instead they used it to replace income and continued to make their mortgage repayments. We wanted things to be as flexible as possible and we helped review their expenditure on a regular basis after the claims had been paid.”