The loss of a key person or shareholder though death or illness can have dire effects on a business’s ability to function. Once the need to protect against such circumstances is established, it is important to get cover in place as soon as possible to mitigate the risks.
Whilst providers applications and straight through processing have greatly improved, there will always be cases where policies cannot be placed on risks immediately – especially where high sums assured are involved.
Immediate cover can normally be obtained on all business protection policies to help reduce this risk, offering a level of cover for the company whilst the application is being underwritten. The provision of immediate cover, however, is not as simple as it would appear and understanding the finer details will help advisers ensure that cover is provided where required and the business is not left exposed.
Perhaps most important for advisers and their clients to understand is the events in which the cover will not pay. Insurers will offer one of two types of immediate cover, death in any event – barring certain standard exclusions – and accidental death. For a claim to be paid for accidental death the death must have been caused solely by the resulting injury of an accident. Clearly, insurers that do not stipulate that death must be caused by an accident offer wider cover. Currently, both LV= and Scottish Widows limit their immediate cover to accidental death only.
The following table details what is excluded during the immediate cover terms. This is an important area to understand as with less exclusions means the higher potential of a pay out, if the need arises:
When will immediate cover commence?
It may not always be feasible to obtain the completed application, direct debit and financial evidence at the same time, as the information will come from different areas of the business. In such scenarios, the adviser may want to submit the application so that the medical underwriting can commence and provide the direct debit and financial evidence later.
Aviva are the only insurers that can facilitate this by commencing the immediate cover on receipt of the completed application alone.
If the adviser is able to submit the completed application along with the direct debit then AIG, Legal & General, LV=, Royal London, Scottish Widows, Vitality and Zurich would provide cover. Old Mutual Wealth will offer immediate cover terms with a completed app and financial evidence supplied and Aegon will offer terms with a completed app, direct debit, financial evidence and cheque for the immediate cover period.
Where the life assured is slightly older, advisers should be aware of the age limits as many insurers stipulate a maximum age above which they will not provide immediate cover. Currently, Aegon, Aviva and Legal & General are the only insurers that do not apply a maximum age. Old Mutual Wealth offer cover up to the age of 65, AIG and Scottish Widows to 60, Royal London to 59, LV= and Zurich to 54 and Vitality to 49.
How much will insurers pay on death?
Where the policy is being set up to cover a particularly high sum assured advisers need to understand the maximum amount of immediate cover insurers will provide. This will usually be the lesser of the sum assured, the loan/liability amount (if loan protection), the shareholding (if shareholder protection) or the maximum monetary amount the insurer sets out in their conditions.
Aegon offers the highest maximum sum assured limit at £3.5 million with L&G and Old Mutual Wealth accepting up to £3 million followed by Zurich at £2 million.
How long is immediate cover provided for?
The time it takes to underwrite a case and put on risk will usually depend on how long it takes to obtain the medical and financial evidence. Whilst in most cases this is unlikely to be problematic, there may be situations where some information is delayed, for example, where the financial evidence may be difficult to come by, the life assured is unable to attend a medical in a timely fashion or where the underwriter asks for further information delaying terms being offered.
AIG, Aviva, Zurich, Royal London, Scottish Widows and Vitality offer cover for 90 days, where Aegon, Legal & General, LV= and Old Mutual Wealth offer cover at 60 days.
Overall, there are many factors to take into account as no two propositions are the same when it comes to comparing providers and what they offer.
Aegon and Old Mutual Wealth stand out with regards to the maximum amount of cover potentially on offer at £3,500,000 for Aegon and £3,000,000 for Old Mutual Wealth. Other areas worth highlighting for both providers are that Aegon apply the least amount of exclusions on terms with Old Mutual Wealth being able to accept terms, potentially with disclosures on application at outset, depending on severity. Zurich also offer a strong all round offering with a high level of cover available and only one exclusion whilst also offering terms despite medical disclosures.