What cover do insurers offer before a LIFE policy is put in force?
When a client makes that decision to commit to buying protection, like any buying decision we make, they’re likely to want the cover in place as quickly as possible. Often, and especially in recent times, obtaining medical evidence, can be a painful and time consuming process. Whilst insurers are providing more agile and creative solutions, and the portal offerings of the likes of iPipeline’s XRAE, LifeQuote and Underwrite Me can streamline the journey, there are still significant numbers of cases that just have to wait for the requisite medical evidence which delays the client having their valuable cover in force. In this article we look at what insurers offer in terms of immediate cover
The most critical scenario will be mortgage protection where it is essential there is cover in place when the liability starts. In other scenarios cover may not actually be needed for a few weeks but even then circumstances can change and the need for cover can become immediate. In either of these scenarios delaying the cover start date is far from ideal and creates tension and frustration for all parties
Aside from the challenges of obtaining medical evidence in the current climate there could well be valid reasons why a policy cannot be put in force before or when the client’s liability starts, for example:
- The policy may need to be written into trust before being placed on risk; or
- If the plan is mortgage related the policy start date could be set to coincide with the completion of property purchase – yet the client’s liability starts at exchange of contracts
Although the date the policy goes on risk is largely out of the client’s and adviser’s control, most insurers recognise the conundrum and provide elements of free cover to ensure that the client is at least partially protected before the policy goes in force
There are two main types of free cover offered by insurers;
- Free cover during underwriting – provides a level of cover whilst a case is being underwritten.
- Free cover during property purchase – provides cover to mortgage clients from the date their liability starts (the exchange of contracts) until the start of the policy, which is usually upon completion.
Currently AEGON, Aviva, Guardian, Legal & General, LV=, Royal London, The Exeter (Managed Life), Scottish Widows, VitalityLife and Zurich all offer both free cover during underwriting and free cover during completion of property purchase. AIG and Canada Life do not offer free cover during completion of property purchase.
Whilst the two types of cover are very similar there are some major differences in how different insurers provide the cover and perhaps most important is the circumstances in which the cover will pay out.
- For free cover during underwriting, Canada Life, Legal & General, LV=, The Exeterand Scottish Widows, will only pay a claim for accidental death, therefore, in the current environment, death due to coronavirus would not be covered.
- Alternatively, for free cover during mortgage completion, only The Exeter limit there cover to accidental death
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
The maximum sums each insurer will pay in the event of death for each free cover type should also be a consideration for advisers. This is usually the lesser of the sum assured, the mortgage/liability amount or the maximum monetary limit the insurer sets out in their conditions.
Guardian and Royal London offer the most cover by far for free cover during underwriting. Guardian, also offer free cover during mortgage completion with no maximum sum assured limit, whilst AIG offer up to £1,500,000 and Royal London and Scottish Widows both cover up to £1,000,000 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 vary but is typically between 7 and 28 days, however there may be times where it takes longer. Likewise, the time to underwrite a case will often be dependent upon obtaining medical evidence and, in the current environment, this may be significant. In such cases an adviser should consider their chosen insurer’s stance on the length of time for which the 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.
Some insurers allow a longer time frame for free cover during completion of property purchase, however most insurers will apply the same time difference for both. Guardian again come top of the tree here and do not specify a maximum time period for free cover during underwriting.
*Guardian do not state a maximum time limit on their free cover during underwriting
Unless you are recommending a policy replacement on the same terms, getting your client on risk as quickly as possible will always be an important factor. For clean applications there is probably little difference as most insurers have comparable ‘Straight Through Processing’ rates, but where case are more complex, perhaps with additional underwriting requirements, completing trusts or coinciding the cover start date with a property purchase, free cover can help to limit the client and their family’s loss in the event of the worst happening at the wrong time
As providers continue to improve their application processes and provide more instant decisions on complicated cases, the need for free cover during underwriting will diminish. But until then, 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 offer a valuable benefit and whilst the limits on free cover may mean that not all the client’s liability can be covered, having some cover in place is better than having none at all.
The stand out for the maximum amount of cover are Guardian who offer up to £1,000,000 cover for property purchase and no ceiling during underwriting. AIG will offer cover of up to £1,500,000 during underwriting with Royal London also worthy of a mention for offering cover of up to £1,000,000 both during underwriting and during mortgage completion. In terms of the breadth of cover, Aegon are worthy of note with no automatic exclusions, with Aviva and Zurich running a close second. Top of the pops in terms of the length of time the cover is available is Guardian.