When recommending protection to a client, advisers will weigh up many different factors in order to ascertain the right policies and the right level of cover. This will include factors such as current income/expenditure, liabilities and what their family might need if they dies or suffered a serious illness. Whilst these can all be assessed at the point of making a recommendation they are also things that can and often do change throughout a clients’ life. Advisers can allow for known future events and inflation proof plans within their recommendations, however when such a change is not planned or unexpected, the client could be left under protected. In this article we look at what features are available to help clients increase their cover when a major life event happens.

Increasing cover once a policy is in force will often lead to additional underwriting. If the client has suffered from health concerns since the origination of the plan this can cause difficulty as an extra rating may be applied or worse the increase might be declined.

Guaranteed Insurability Options help clients combat this risk by allowing them to increase their sum assured without further medical underwriting if a major life event happens. Below we provide examples of when these options can be utilised across different benefit types.

Life or Critical Illness Cover

There are many different reasons why life or critical illness cover may be put in place ranging from covering a mortgage or liability through to providing financial security to family. Where cover is to protect a liability such as a mortgage it is important for the cover to reflect the total liability and as such keeps track when and if the client remortgages or moves home. If and when a client has (or has more) children it is likely that the amount of family protection required will need to increase to reflect the additional costs the new child may bring.

In this piece we consider when Guaranteed Insurability Options can be used for life or critical illness, how long the client has to exercise the option after the event has happened, how much the plan can be increased by and who offers this on rated cases.

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Income Protection

To provide a sufficient level of replacement income in the event of being unable to work due to ill health or injury it is important that the benefit level on income protection plans reflect the clients’ expenditure. As a client progresses through their career it is likely that their income will increase and with it their level of expenditure. Inflation proofing plans can provide some level of protection against this, however there are also significant life events that may mean that expenditure might increase above the level of inflation.

In this article we look at what significant events are covered under the Guaranteed Insurability Options within income protection plans along with how much cover can be increased by and how long after the event they can be increased. We also consider which insurers will allow clients to increase their benefit at certain policy anniversaries regardless of whether a major event has happened or not.

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Family Income Benefit

Income protection protects a clients income in the event of being unable to work, whereas Family Income Benefit protects a families income in the event of death or critical illness. To obtain a suitable level of cover for family income benefit plans, many of the same assessments will be made in terms of the family expenditure. As such it is also important that as this expenditure changes the level of benefit under this plan changes with it.

In this article we consider the specific events in which Family income Benefit can be increased without underwriting, who covers these events, how long the client has to exercise the option after the event and by how much on a single event or across multiple events.

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Business Protection

There are three main types of business protection.

  • Key person protection aims to protect the business against potential loses if a person critical to the running of the business becomes ill or dies.
  • Shareholder protection provides shareholders in the business with the ability to buy back the shareholding if another shareholder becomes critically ill or dies
  • Business Loan protection enables a business to repay any liabilities in the event of a person vital to the repayment of the liability becoming ill or dying.

In all cases the cover is put in place to protect against potential loses to the business or shareholders and not the life assured themselves. As such the Guaranteed insurability options on business protection plans reflect this by enabling businesses to increase the level of cover if their potential loss, shareholding or liability increases.

In this article we consider the events after which guaranteed insurability options can be used, how much the cover can be increased by, how long businesses have to effect the increase and whether this can be done if a rating has been applied.

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Watch out for future “Everything you need to know” pieces where each week we will cover a different topic and provide you with the information you need to know to discuss the topics with your clients.