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. In this article 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. The typical exclusions include suicide and high risk occupations, however some insurers will also exclude claims relating to harzardous pursuits, alcohol or drug abuse and non-commercial flying. 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. Whereas other insurers requiring varying levels of information to be submitted before they will start the immediate cover.
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. In such circumstances it may depend on the severity of the disclosure whereas some insurers will offer immediate cover as long as the disclosure is unlikely to lead to a rating.
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 currently 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, Royal London, Zurich, and Vitality offer cover for 90 days, whereas Legal & General and LV= 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 stand out as they have the maximum amount of cover potentially on offer at £3,500,000 and only apply a suicide exclusion on terms. Zurich & Legal & General also offer a strong all-round offering, with high levels of cover available, only one exclusion and three exclusions respectively. Where a client may have a medical disclosure AIG, Aviva, Royal London & Zurich stands out as they offer immediate cover in all cases, where as Aegon will make a judgement based on the seriousness of the disclosure.