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Protection Report No. 7

Many people with everyday health issues are currently better off NOT using the cheapest insurer. This report explains why.

The price of any insurance product is important when you fit the insurers box. But what if you don’t? And what if the number of consumers who didn’t fit the box was growing every week? More and more applications for life insurance are now being treated as what our industry calls ‘non-standard’ and what was considered normal health five years ago isn’t today.

In order to lure customers with seemingly cheaper premiums, more and more questions are being asked of applicants when they apply for life insurance and as a result more and more consumers are being hit with:

This is all very well if you are young, have perfect health, don’t smoke, have a ‘run of the mill’ job and your close family are perfectly healthy too. But what if you’re not?

Inside this issue

PAGE 2. I’M STILL STANDING - Encouraging news about serious illness.

PAGE 2. SOMETHING IS BETTER THAN NOTHING IN PROTECTION. OR IS IT? - 5 good reasons why this ain’t necessarily so.

PAGE 3. YOU’RE THE ONE FOR ME FATTY - Obesity and the effect is has on life insurance.

PAGE 3. EVERYBODY’S TALKING - What the industry has to say.

PAGE 4. PETER LE BEAU - A personal insight into the changing world of protection.

Away from the numbers

Price is important. Not so much the price consumers are quoted at outset but the real price they need to pay every month when they have been underwritten. This is where independent advice can really add value.
‘It is becoming increasingly more common for customers who’s health isn’t 100% perfect that we can save them more money by choosing one of the more expensive product providers.’
- LifeSearch Adviser

Some call it cherry-picking, some call it preferred life underwriting. Either way it helps to shop around as not all insurers are the same. In fact, in the current environment, they can be very different.

Table of case study decisions
CLIENT SEX AND UNDERWRITING CONCERN PREMIUM & DECISION FROM CHEAPEST PROVIDER AT OUTSET LIFESEARCH DECISION & ACTUAL PREMIUM CHARGED BENEFIT TO CLIENT OVER 25 YEARS BY USING A MORE EXPENSIVE INSURER
Male, Diabetic £21 & postpone £26 +100% loading = cover at £52pm No cover offered otherwise
Female, Stress with anti-depressants £18 +100% loading = £36 £20 +50% loading = cover at £30 Saved £1,800
Male with high BMI £32 + 50% loading = £48 £38 and no loading Saved £3,000
Female with history of breast cancer £50 + 100% loading = £100 £62 + 50% loading = £91.50 Saved £2,550

 

Non-advice consequence chart
TYPICAL ACTION NON-ADVICE ISSUE TYPICAL RECOMMENDATION WITH ADVICE
One joint life policy A couple buying life insurance Two single life policies
£200,000 lump sum Example sum assured £12,000 per year Family Income Benefit
Not provided Counselling and rehabilitation Automatically provided free of charge through LifeSearch
None Use of trusts Flexible Trust arranged
No Ability to seek redress from ombudsman if policy sold is unsuitable Yes
NON-ADVICE CONSEQUENCE ADVICE
£200,000 with threat of minus 40% Inheritance Tax = £120,000 Payout if both lives were to claim after 5 years of a 25 year term £12,000 x 20 x 2 = £480,000
Premium = £24.28pm Example cost for a non-smoking couple, in good health, aged 35 * Premium = £23.89pm
Difference in payout? £360,000 *rates correct as at October 2005

 

LifeSearch says... Cherry picking does not benefit UK consumers overall as it leads to social exclusion, which only widens the £2.3tn UK protection gap – unless you speak to an adviser who knows what they’re talking about. More than a third of new applications are now treated as non-standard, with as many as two thirds requiring some form of additional information, on top of a 30 page application form, before cover can commence. This number has doubled since LifeSearch launched in 1998.

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