Example of Serious Illness cover working

Running through the scenario of a 29 year old, non-smoking male client taking out a £200,000 mortgage over 25 years. As affordability is an issue, the recommendation is Life Cover of £200,000 with Serious Illness Cover of £50,000 at a premium of £20.45 per month.With the PruProtect Plan, or indeed the new PruProtect Essentials Plan, structuring cover like this actually provides the customer with access to Serious Illness Cover of up to £150,000.

This is how it works.

At the heart of the PruProtect/PruProtect Essentials plans is a plan account. This plan account is the ‘pot of money' that is available to pay claims for Life Cover and Serious Illness Cover. These benefits are expressed as a percentage of the plan account. In this case Life Cover is 100% of the plan account (£200,000) and Serious Illness Cover is 25% of the plan account (£50,000).

It is important to remember the point that benefits are expressed as a percentage of the plan account because this helps to understand how claims impact the remaining cover.

After taking out the plan the customer suffers a minor heart attack. A severity C serious illness claim was paid equal to £25,000. After payment of the claim the plan account reduces by the amount of the claim which leaves the customer with Life Cover of £175,000 and Serious Illness Cover of £43,750 (25% of the plan account).

Some time later the customer is involved in a motor cycle accident and loses a leg. This results in the payment of a Severity B Serious Illness Cover claim of £32812 (75% of the remaining Serious Illness Cover). After payment of this claim the plan account reduces again by the amount of the claim to £142,188. The remaining life cover is equal to the new plan account amount and the Serious Illness Cover is now £35,547.

Unfortunately the customer is diagnosed with advanced cancer. This results in a severity A Serious Illness Cover claim of £35,547. The plan account reduces by the amount of the claim paid and the remaining life cover is £106,641 and the remaining Serious Illness Cover is £26,660.

In this scenario the PruProtect plan would have paid a total of £93,359 even though the customer had only paid a premium for serious illness cover of £50,000! For more information or free quotation please click here.

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