Business protection can provide a financial lifeline to businesses by paying out a sum of money in the unfortunate event of the loss of a key person or partner/shareholder. Receiving this payment can make sure the company can pay its debts, replace key employees and let partners/shareholders keep control of the business.
With everchanging business needs, having a plan with the flexibility to increase your cover could be a major difference at your time of need. This week we look at the Guaranteed Insurability Options (GIOs) offered by insurers for business protection plans to ensure your clients continue to have the correct amount of cover in place.
GIOs allow businesses to increase the amount of cover without the need of further medical evidence for the individual insured. This provides advisers and stakeholders with a less complicated route of increasing the amount of cover, especially if the life assured’s health has changed for the worse since taking out the original policy. There are various events which insurers offer GIOs on business protection policies, and three main GIOs depending on the reason for cover:
- Increase in value of a key person
- Increase in partner/shareholder’s interest
- Increase in business loan
Most insurers will allow the policyholder to use a GIO more than once over the term of the policy, however they do place limits on the amount the policy can be increased and when the GIO can be exercised. The amount the policy can be increased by varies across the market, ranging from £150,000 to £250,000 limited to either 50% or 100% of the original sum assured.
*£200,000 is the maximum AIG will increase the sum assured over the policy term. However, they will only allow a maximum of £75,000 per event
**£250,000 is the maximum Legal & General will increase the sum assured over the policy term. However, they will only allow a maximum £150,000 per event
***£250,000 is the maximum LV= will increase the sum assured over the policy term. However, they will only allow a maximum £150,000 per event
The period after the event has happened, during which the GIOs can be exercised, differ among insurers and businesses are required to inform the insurer within 3 to 6 months of plausible GIO events occurring if they want to increase the underwritten amount without any need for further medical evidence, health questions or assessments. Additionally, businesses should be aware that the maximum age a GIO can be exercised is typically 54 or 55 years old.
Another area where insurers differ on GIOs is where they are offered to clients that have been medically rated at outset. With the exception of AIG, Old Mutual Wealth and LV=, insurers will not offer GIOs to clients that have been accepted on non-standard rates. AIG and Old Mutual Wealth will offer GIOs to any client with a rating of 100% or lower, whilst LV= will allow plan holders to exercise a GIO if the policy had a rating of up to 225%. As most business protection plans have a higher life assured average age, it stands to reason that there are likely to be more cases rated. As such, having access to GIOs can be very valuable as advisers are unlikely to want to put the life assured through more medical underwriting to put a top-up plan in place.
Avoiding the need to obtain new trust forms, as well as medical and financial underwriting information means that where possible, exercising a GIO on a business protection policy could be far less stressful and time consuming for the client. Where the life assured’s health has changed this could be even more advantageous as the premium rate applied to the increase would be based on their state of health at application.
Ongoing servicing of clients is more important than ever and ensuring that their protection provisions remain suitable should be a key part of this. GIOs offer advisers and clients alike an easier way to increase cover and as such should be firmly in the adviser’s thinking when considering the best course of action for their clients.
Overall, LV= and Old Mutual Wealth standout as they both offer the highest level of increase and are two of the three providers who allow clients with rated cases to have GIOs. Whilst AIG’s individual event increase is relatively low, they should also be commended for offering GIOs to those with modest ratings.