When it comes to life insurance, are cheap life insurance policies a false economy? Do they put more obstacles in the way of claiming for example?
With the current situation regarding Covid19 (or Cronavirus) I was thinking about the mortgage cover life insurance policies we provide and how they can help (or have helped) our customers who took out a life cover policy through ourselves, rather than the cheaper alternatives.
Around 2 years ago we took the decision to limit the providers we use for life insurance and other types of Protection. There were 2 reasons for this, we want to know the policies we deal with inside out and it has to do that with 10 providers, the other reason was based on feedback and reviews from people who have had to deal with the insurers in question.
We do not want to be recommending providers who were not helpful when needed so we regularly review the insurance providers we recommend.
With that in mind, I thought I would explain why some of the policies we recommend and why they are a cut above the cheaper alternatives and what additional benefits they offer customers.
I have sent out an email to all of our customers who took out a Protection policy through ourselves about their free access to the Bupa Healthline.
This is a call centre with qualified nurses on hand to help with any questions or concerns – which includes anything through Corona Virus through to Strokes.
It is similar to NHS 111 but is probably easier to get through to in the current climate and if nothing else you could try the 2 and get a second opinion.
This is a fantastic additional benefit for customers whom have taken out Bupa Life Cover and is not a benefit found with cheap Life insurance policies.
Some providers offer cheap Life insurance premiums which seem attractive at the quotation stage, but as soon as you mention any health issues, the premiums start to increase.
While we can not guarantee your premiums will not increase if you have health issues, the provider we use has a bigger tolerance than other providers and so actually you may find in the long run the more expensive provider at the quotation stage, is actually the cheaper life insurance provider on policy commencement.
Smoke and mirrors
When people see life insurance, they see the monetary amount and the term and think that will pay my mortgage.
The reality however is that it may not.
However, for added peace of mind when it comes to covering your mortgage, some of our providers offer a Mortgage guarantee. By this they mean that if you have been paying your mortgage on time, they will guarantee to pay out enough to clear your mortgage in full.
However, in comparison, some of the cheaper providers use a calculation to determine how much to pay your family in the event of your death and that amount may or may not be enough to clear the mortgage.
Critical Illness Cover
Some policies, in a similar fashion to the above were they include a mortgage guarantee, offer critical illness payment.
Some companies state they will cover some 40-50 conditions for example, but some of those conditions may never ever receive a claim. All of the conditions covered under the term critical Illness have to cover a specific definition as a bare minimum – and those definitions are set by the ABI.
Some of the more expensive providers offer ABI+ conditions which means they go above and beyond the minimum requirements in order to make a claim more likely to be paid out.
Who are these cheap life cover companies?
Some of cheap Life insurance providers are relatively new and have no real history of making claims. Some customers rightly ask what happens if the life insurance provider goes under? Will you still have cover?
In the event of your life insurance provider going out of business, the Financial Services Compensation Scheme (FSCS) steps in to.
FSCS is an independent and free service designed to protect your money in the event that your financial services firm fails.
In the event of your ‘authorised’ and ‘regulated’ life insurance provider going out of business the FSCS’ first priority is to facilitate alternative cover to a new regulated insurer. This ensures that the home and mortgage secured against it still have a suitable life cover policy in place.
Consumers should bear in mind however, that the Financial Conduct Authority or the Prudential Regulation Authority must have regulated the insurer as FSCS can only cover regulated firms and brokers.
Some cheap Life insurance policies may not be from ‘authorised’ and ‘regulated’ life insurance providers, and may even be from companies outside of the UK.
Always check the policy terms and conditions and who is underwriting the policy and whether or not they are an ‘authorised’ and ‘regulated’ life insurance provider as in this event, cheap life cover may not be worthwhile should the provider go out of business.
Another thing to consider is that you may be thinking about sorting the mortgage now and you will get round to arranging the cover late.
it is always worth considering that if you do not have life insurance cover now, taking cover out down the line could be more expensive or even impossible, especially if you have future medical conditions diagnosed that increase your premiums, or are severe enough to be denied cover altogether.
We are not saying do not take out a cheaper policy. What we are saying however is that it is important to understand why certain life cover policies are cheaper so that you can make your decision having understood the differences and the risks.
As an advocate of the saying;
“it is better to have something and not need it, than need it and not have it”
We always advise to secure your home and mortgage in the event of death as losing a source of income to the household will have financial consequences and as a minimum we would advise that the family home be protected.
Having said that, whilst this is considered good general advice and prudent financial planning, it is entirely up to each customer whether or not they heed that advice.
In some Life insurance policy cases it could be as little as £1 to £3 per month difference for added benefits and for such a small amount it seems crazy to miss out on the extra benefits, reassurance and peace of mind that these companies offer but again, our role is to offer the advice, whether you take it or not.