There are many reasons why a client might need cover in place quickly, however where medical underwriting is required, this may not always be possible. Likewise, where cover is being put in place to cover a mortgage it is important for the client to be insured from the date they are ultimately liable, which may be earlier than the mortgage start date. To help with both many insurers offer immediate cover to their clients which provides free cover during such events. As ever, there are some major differences in how free cover is offered.

There are two main types of free cover offered by insurers each designed to provide cover before a policy is put in force. Free cover during underwriting does exactly as it says on the tin by providing a level of cover whilst a case is being underwritten. Free cover during property purchase completion is designed to provide cover to clients taking out a mortgage from the date their liability starts – i.e. the exchange of contracts – up until the start of the policy, which will usually be on completion.

Whilst the two types of cover are very similar there are some major differences in how different insurers provide the cover.

Perhaps most important is in what event the cover will pay out. Most insurers that offer free cover during underwriting and free cover during mortgage completion for critical illness, will cover the client if they are diagnosed and meet their definition for a condition during the free cover period. Guardian on the other hand will only cover clients if their injury, illness or condition is the result of an accident for free cover during underwriting (Free cover during mortgage completion has their standard T&Cs)ss. Whilst Vitality do not restrict claims to accidents, they will only cover clients if they are diagnosed with a condition that meets their severity level A or B (i.e. the two most severe levels).

As the free cover during underwriting is provided before terms are offered there are understandably some restrictions. These can include death due to self-inflicted injury/suicide, hazardous pursuits, alcohol or drug abuse, war or civil commotion and even flying other than as a passenger in a commercial aircraft. The exclusions applied by insurers vary greatly and the below highlights which each insurer applies to their free cover for critical illness.

Another consideration for advisers should be the maximum the insurers will pay out on death for each free cover type. The maximum will usually be the lesser of the sum assured, the mortgage/liability amount or the maximum monetary amount the insurer sets out in their conditions.

Except for Guardian all insurers apply a maximum limit for critical illness cover to both free cover during underwriting and free cover during mortgage completion. Guardian do apply a limit to their free cover during underwriting but apply no limit (except the maximum sum assured on the policy, £3m) to free cover during mortgage completion.

The time between exchange and completion on a property purchase will usually be between 7 and 28 days, however there may be times where it takes longer. Likewise, the time it takes to underwrite a case will often depend on how long it takes to obtain medical evidence, and, in some cases, this may be a significant amount of time. In such cases an adviser should consider what their chosen insurer’s stance is with regard to the length of time they provide their free cover for.

In general, most insurers adhere to the same criteria as to when the free cover will cease, and these are;

  • Free cover during underwriting – The earlier of acceptance terms/declined or postponement notices being issued or 90 days
  • Free cover during completion of property purchase – The earlier of the policy being put in force, the completion of the property purchase or 90 days.

Unless a recommendation to replace an existing policy is being made, ensuring that the client is covered as soon as possible will always be important. Where there is a clean application this is often relatively easy, however where additional complications arise, such as getting trusts completed or needing to coincide the policy start date with the start of the mortgage, free cover can help to limit the client and their family’s loss in the event of the worst happening.

As providers improve their application process and begin to provide more instant decisions on complicated cases, the need for free cover during underwriting will diminish. In cases where the policy is being put in place to cover a liability such as a mortgage, advisers should consider at what point the client’s liability will start. If the policy cannot be put in force on that date, then policies that offer the client free cover should become a desirable commodity. Whilst the limits on free cover may mean that for wealthier clients, not all the liability can be covered, having some cover in place is better than having none at all.

Of all the insurers that offer free cover for critical illness, AEGON and Royal London offer the strongest propositions. They both offer free cover both during underwriting and during property purchase completion along with high sums assured and the fewest exclusions across the market.