Putting a protection plan in force can be a laborious and time-consuming task. So, when a client decides to take out protection cover it is useful to have the ability to get it on risk as soon as possible. Whilst quotation portal functions such as iPipeline XRAE, LifeQuote and UnderwriteMe are making this a more streamlined process, there are still a significant number of cases that cannot be put in force immediately. This week we look at what provisions insurers put in place to cover clients against death when policies cannot be put in force immediately.

In some cases, cover may not actually be needed for a few weeks but if plans change and it is needed urgently, having to delay whilst a case is being underwritten can create tension between the parties working together. If the policy is being taken out to cover a debt such as a mortgage, it is imperative that there is cover in place when the liability starts.

There are a number of reasons why it may not be feasible to put a policy in force before or at the point at which the client’s liability starts. These include:

• The application needs to be medically underwritten with medical evidence being obtained,
• The policy needing to be written into trust before being placed on risk; and
• The policy being set up to cover a mortgage and therefore the policy start date is set to coincide with the completion of property purchase – whilst their liability will start at the exchange of contracts.

In most of these cases the date the policy goes on risk is largely out of the client’s and adviser’s control, however most insurers now provide elements of free cover to ensure that the client is at least partially protected.

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.

Currently AEGON, AIG, Aviva, Guardian, Legal & General, LV=, Royal London, Scottish Widows, VitalityLife and Zurich all offer both free cover during underwriting and free cover during completion of property purchase. Old Mutual Wealth do not offer free cover during completion of property completion as they do not offer a mortgage protection plan.

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 the circumstances in which the cover will pay out. For free cover during underwriting, all insurers with the exception of AIG, Aviva, Guardian, Royal London, Vitality and Zurich will only pay a claim for accidental death. Alternatively, for free cover during mortgage completion, no insurers apply this stipulation.

As the free cover during underwriting is provided before terms are offered there are understandably more 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.

* Fewer squares are better

Another consideration for advisers should be the maximum the insurers will pay out in the event of 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. AIG offer the most comprehensive cover by far in this area with a maximum of £1,500,000 for both free cover during underwriting and free cover during completion of property purchase.

*Old Mutual Wealth do not offer mortgage protection plans and therefore do not offer free cover during mortgage completion
**Guardian have no limit to the sum assured on 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 will provide their free cover.

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 the maximum number of days stipulated by the insurer
• Free cover during completion of property purchase – The earlier of the policy being put in force, the completion of the property purchase or the maximum number of days stipulated by the insurer.

Again, there are some substantial differences between insurers and the type of free cover provided. Some insurers will allow a longer time frame for free cover during completion of property purchase, however most insurers will apply the same time difference for both.

*Old Mutual Wealth do not offer mortgage protection plans and therefore do not offer free cover during mortgage completion

Unless a recommendation to replace an existing policy on the same terms 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 not all the liability can be covered, having some cover in place is better than having none at all.

Overall, AIG are the stand out with very few exclusions and the highest value of free cover at £1,500,000 for a period of 90 days. Guardian and Royal London are also worth highlighting as similarly to AIG they offer a high amount of free cover at £1,000,000 for 90 days with minimal exclusions.