Which insurers offer free cover for critical illness?
In reading this article you will understand:
- Which providers offer free cover during underwriting and free cover during mortgage completion on critial illness cover
- What the limits for the free cover are in terms of sum assured and time frames
- The exclusions that might be applied to free cover.
When an adviser spots a client’s need for critical-illness cover, the application process is a bit like buying something that is made to order rather than off the peg. It will take a bit of time to process, because it is built for the individual and will need to be priced according to their specifications.
This means cover cannot start instantly, which is problematic. Clients who need cover in place to protect a mortgage face a gap in between acceptance terms being issued and the date their critical-illness policy starts, which is usually upon completion of the mortgage.
Obtaining medical evidence can also be more time consuming in cases where clients have a medical condition that they disclose on their application form. Insurers obviously need to understand more about the condition before they can put the cover in force and given the extra demands on the medical profession due to Covid-19, it can take longer than normal to obtain the medical evidence that is needed to process applications for critical-illness insurance.
In the meantime, the client’s need for cover still remains and any delay in the processing of their application will leave them exposed. This is why some insurers provide temporary cover, known as free cover, so clients will at least be partially protected while they are waiting for their application to go through. In this insight we look at which insurers provide free cover for critical illness before a policy is put into force.
There are two types of free cover that could be offered on the critical illness element of a plan relating to cover during underwriting and cover during property purchase. These are similar but there are differences between insurers in how they provide this cover.
As our data shows, seven of the 12 insurers listed provide free critical illness cover during mortgage completion, while just four – AIG, Guardian, Royal London and Zurich – provide free critical illness cover during the underwriting process. Only Guardian and Royal London provide both types of free cover.
Most insurers limit the amount of free cover they provide during mortgage completion and underwriting.
As our data shows Guardian is the only provider which applies no maximum in monetary terms to the amount of free cover it offers during mortgage completion (except the sum assured limit for critical illness which is £3,000,000). Among those who do apply a maximum, Royal London and Scottish Widows have the highest limit at £500,000, while LV= and VitalityLife provide the lowest at £300,000.
There is a greater consensus among the handful of insurers who provide free cover during underwriting, since AIG, Guardian and Royal London all provide the highest maximum of £500,000. Only Zurich deviates from this with a much lower level of £150,000.
Before free cover can begin, insurers will require certain things. In the case of free cover during mortgage completion, a slim majority of insurers will require acceptance terms to be issued, with Guardian, Zurich and Vitality willing to provide free cover to clients who are accepted on non-standard terms. LV=, Royal London and Scottish Widows do not require acceptance terms for free cover to start.
Slightly fewer insurers insist on exchange of contracts before providing free cover than the four who don’t have this requirement – LV=, VitalityLifePPP, Royal London and Guardian.
Similarly, there are requirements before free cover during underwriting can start. As you would expect, more insurers require a completed application form than a completed direct debit mandate, although AIG, Royal London and Zurich require both.
It is common for the maximum period that free cover will be provided to be at the longer end of the scale that is offered across the market. Free cover during mortgage completion tends to be offered for up to 90 days, with only LV= going much lower than that 60 days. During underwriting, 90 days is also typical, although Guardian offers free cover with no time limit, while AIG’s CIC Start plan goes substantially lower at 60 days.
Given that advisers may be dealing with older clients, it is important to know the maximum age to which free cover will be provided. As our table shows, Aegon and Guardian specify no age limits during mortgage completion, while VitalityLife PPP has the lowest age limit at 49. During underwriting, Guardian stands alone in applying no age limits to free cover, while Zurich has the lowest age limit at 54.
As free cover is provided before the underwriting process is complete, insurers obviously need to err on the side of caution. This is shown from the exclusions they may apply to self-inflicted injury/suicide, hazardous pursuits, alcohol or drug abuse, war or civil commotion and flying other than as a passenger in a commercial aircraft.
Our data shows most insurers apply one or two of the six automatic exclusions listed to free cover during mortgage completion and underwriting.
Looking initially at mortgage completion, six out of the seven who provide free cover exclude self-inflicted injury/suicide. For LV=, VitalityLIfe PPP and Zurich, this is the only exclusion. Royal London and Scottish Widows exclude this and hazardous pursuits, while Guardian is the only provider not to apply any of the exclusions listed.
Guardian are not so generous in its approach during underwriting, as it excludes self-inflicted injury/suicide and hazardous pursuits. However, most insurers who provide free cover during the underwriting take the same approach to these two exclusions. Zurich is the only provider with a slightly different stance, as it excludes self-inflicted injury/suicide but not hazardous pursuits.
Overall, Guardian comes out strong in many respects, including its lack of age limits. In relation to free cover during mortgage completion, it applies no exclusions, it is the only insurer to have no limit in monetary terms and will accept clients on non-standard terms.
In relation to free cover during underwriting Guardian shines because it does not limit the maximum period for which it will provide cover. Like Guardian, Royal London also deserves credit for offering free cover during mortgage completion and underwriting as none of the other insurers do.
Things to reflect on for CPD:
- What are your top three learning points from this article and how can you apply them in your client conversations? How might this differ for different client occupations / demographics.
- Required further reading: This related Protection Guru article examines which providers offer free cover for life policies. Consider this article together with the learnings from today’s insight and reflect on how the two offerings compare and how they may affect your recommendation.