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Age limits on business protection critical illness – how insurers compare

Age limits on business protection critical illness – how insurers compare

Some advice firms specialise in advising smaller businesses and helping clients obtain business protection is a key part of the service they offer. Given that there were around 5.9m small and medium sized enterprises (SMEs) in the UK last year, comprising over 99 per cent of all businesses, the potential market for advice is huge. As is the opportunity; it’s often said that for business insurance the problems are the same as for personal cover, but the premiums are higher.

As businesses come in all shapes and sizes, just like the entrepreneurs who bring them to life, advisers need the ability to cater for them all. Whether it’s a young entrepreneur with a university spin-out firm or seasoned professional who has already built and sold several successful businesses, it’s the adviser’s job to source the right insurer with the right product. But at times, the age criteria that insurers apply to their business critical-illness plans will have an impact on how much choice there is in the market for a particular client. In this insight we delve in to the age limits for critical illness business protection

Starting a business can be a leap of faith for some business owners given that many firms fail relatively early on. Figures from the Office for National Statistics show that only 42.4 per cent of businesses that were started in 2013 were still trading five years later in 2018.

There’s no doubt that businesses in all sectors are finding it tough due to the continuing fallout from Covid-19. A big chunk of the UK economy shut down during the first national lockdown and it appears that some firms will never recover. However, plenty are ‘keeping calm and carrying on’ and the last thing they need, having been braced for survival since March, is for an unexpected diagnosis of a serious illness to add another layer of turbulence to the business.

With business critical-illness insurance in place, firms know that they are financially covered if the business owner or someone else who is important to the company, such as a director, shareholder, partner or a key employee, develops a serious health condition.

The lump sum payment the firm receives after a successful claim can help the business stay afloat. Small businesses can be hit hard financially if business owners or key employees are unable to work for a long time due to a serious illness. They may need to employ a temporary replacement, while still paying the salary of the person who is ill. Other uses for the payout may include buying the ill person out of the business if they are a shareholder or paying business loans taken out by that person.

When choosing a business critical-illness plan for a business owner or key person, some will be better than others if age is an issue. The older people get, the more likely they are to become ill or develop a serious health condition, which increases the likelihood of an insurer having to pay a claim. This is why insurers need to cap the age at which they can offer critical-illness – the higher the life assured’s age, the higher the risk to the insurer and so the premiums paid to cover that risk will increase accordingly. Inevitably, there is a point at which the risk becomes too high or the cost of providing cover is prohibitively expensive, but each insurer will have their own views on where that point is for them.

As our table shows, the maximum age for entry into business critical-illness insurance varies between age 64 and 75. Half the insurers listed in the table – Aviva, Legal & General, LV= and Scottish Widows –  have set 64 as their maximum age at entry. Royal London and Zurich go further with a maximum age at entry of 69, while VitalityLife and AIG occupy the upper reaches of the age scale at 74 and 75 respectively.

When it comes to the maximum age a client can be at expiry, AIG continues to provide cover at the very top of the age scale, at age 85. Aside from VitalityLife PPP – which also provides cover up to age 85 at expiry – and Royal London, which has a slightly lower maximum age at 84, few other insurers come close to that level.

Two insurers – Legal & General and Scottish Widows – provide cover to a maximum age of 69 at expiry, which is the lowest in the market. The middle ground is occupied by three insurers, Zurich, Aviva and LV=, who offer cover to a maximum age of 74, 76 and 79 respectively.

Advisers looking specifically to cover older business owners or keypersons will obviously have more choice the younger the life assured is at entry. Not only that, but the premiums will be cheaper for those in their 50s and 60s than it would be for someone in their 70s, when choice also starts to become more limited.

A brief look at the minimum age at entry shows that the market is fairly evenly divided.

Insurer
Minimum age at entry
AIG
17
Aviva
18
Legal & General
18
LV=
17
Royal London
18
Scottish Widows
18
VitalityLife
16
Zurich
16

Four insurers – Aviva, Legal & General, LV and Royal London – have set the age at 18, while AIG and LV will allow plans at age 17. Vitality and Zurich clients can start plans at age 16.

Entrepreneurs largely tend to be at least 18, otherwise they face all sorts of restrictions on what they can do and how long they can work, as a minor. Even Facebook founder Mark Zuckerman – perhaps the most famous young entrepreneur – was 19 when he created the company. So, unlike the maximum age criteria, the minimum age requirements are unlikely to present any headaches for advisers.

To summarise the options for older clients, for those who do need to look at the very upper reaches of the age scale, AIG and VitalityLife are the obvious choices. With maximum ages at entry of 75 and 74 respectively and both having the highest maximum expiry age of 85, even those who take out the plan at the highest age permitted can let the plan run for a good 10 or 11 years before it must expire.

In contrast, plans two of the four plans which have the lowest maximum age at entry also expire at a the youngest age. Plans with Legal & General and Scottish Widows, which have a maximum age at entry of 64, must expire just five years later than that at age 69.

About The Author

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As well as writing for Protection Guru, Amanda Newman Smith is the feature writer at adviser trade publication Money Marketing. She started her career at a local newspaper in London and has been writing about protection products since 2000. In her previous role at Money Marketing she specialised in analysis of new financial products, including those in the protection market. Having recently become interested in antiques, Amanda spends her free time with her husband and their three children, hunting for unloved pieces to restore to their former glory.

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