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. This week we look at which insurers offer immediate cover including, how it is offered, when it will not pay out and the maximum that will be paid.
Whilst providers applications and straight through processing have greatly improved, there will always be cases where policies cannot be placed on risk 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 circumstances 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 less exclusions means broader coverage:
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 insurer 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, LV=, Scottish Widows, Vitality and Zurich would provide cover. Old Mutual Wealth will offer immediate cover terms with a completed application, financial evidence and a direct debit supplied and Aegon and Legal & General will offer terms with a completed application, direct debit, financial evidence and payment of premiums for the immediate cover period.
When will insurers not offer immediate cover?
Although the majority of cases submitted to insurers are offered terms with minimal medical underwriting required, if a disclosure is made that leads to the case being medically underwritten some insurers may not offer immediate cover. Vitality will not provide immediate cover on any case where a medical disclosure is made, whereas AEGON, Old Mutual Wealth and Legal & General will make a judgement based on the seriousness of the disclosure. LV= will offer cover if the disclosure is unlikely to lead to a rating. AIG, Aviva, Scottish Widows and Zurich all offer immediate cover regardless of any medical disclosures.
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 and Aviva are the only insurers that do not apply a maximum age, with the exception of the maximum age of entry for the plan itself.
*This is the same as the max age at entry for the policy
**Table is referring to the maximum age immediate cover will be provided to for Life cover
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 and Old Mutual Wealth offer the highest maximum sum assured limit at £3.5 million.
*Table is referring to the maximum sum assured for Life cover
How long is immediate cover provided for?
The time it takes to underwrite a case and place it 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.
Aegon, AIG, Aviva, Zurich, Scottish Widows and Vitality offer cover for 90 days, whereas 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.
Old Mutual Wealth stand out as they have the maximum amount of cover potentially on offer at £3,500,000 and are the only provider who apply no exclusions on terms. Aegon & Zurich also offer a strong all-round offering, with high levels of cover available and only one exclusion. One area where Zurich stands out from the other two is that they offer immediate cover in all cases, where as Old Mutual Wealth and Aegon will make a judgement based on the seriousness of the disclosure.