Level Term Life Insurance Guide Discussion

weighty1_2

stephenni1971 wrote: »

Aviva Critical Illness cover is cheaper than most for a reason - covers fewest conditions and I have never yet recommended it to a client better IMHO to pay 5% more and get a superior policy.

Aviva's Critical Illness Cover often gets a panning by advisers on here, however, the plan has recently been significantly improved and is actually the MOST comprehensive plan on the market based on the number of conditions covered and the ABI+ definitions (17 now with Aviva).

Aviva also had the best claims history of any provider publishing their stats with a payout of 94.1% on 2011, although they did not include TPD claims within this.

Cheapest isn't ALWAYS the worst!

amorphix

Hi all,

I'm in the process of getting some life insurance quotes from insurance providers directly myself (I can see the benefits now of using a discount broker - how time consuming getting quotes and comparing all the policy details!)..

Anyway, my reasons for wanting life insurance are not to cover any debt liabilities (I'm a single 40 year old) but rather, to just leave something behind for my family and friends if I die and/or to provide a lump-sum payout if I become critically or terminally ill and unable to work.

The way I've gone about this is by taking a 5 year life term approach and then I can review/renew at the end of the term depending on my financial situation and requirements which may change.... this seems to be a cheaper and more practical way of buying life insurance in terms of planning income needs and living costs etc. But perhaps others disagree and think a whole life policy is the better way to go in my situation? If you have a whole life policy, you can always increase or decrease the level of cover anyway?

My other question relates to how much information to disclose... I know they say you should disclose *everything* when applying for life insurance, but I've found that as soon as you mention even trivial things it can drastically alter the cost of the insurance and some insurance companies won't offer you the fee waiver option at all if you have any health issues.

I'm just wondering, since insurance companies can't/don't have access to your medical records when you buy the policy, what happens if you need to make a claim? Would they require a release form giving them access to your full medical history in that instance, to determine whether they will pay out? I've seen insurance companies say, if you don't disclose something which may be relevant they can terminate the policy or decline a payout. But would that be the case, if the thing you didn't disclose, had no bearing on your death or a critical/terminal illness? Can you see what I'm getting at? Say for example you had depression. An insurance company might consider you a high risk for suicide so adjust premium higher than originally quoted. However, say you didn't disclose depression and you got cancer... could the insurance company say they're not paying out because you didn't disclose depression as a medical condition? I guess it's very complicated and their doctors and experts are the ones who will determine if it's relevant end of the day... hence why most advise just to disclose everything, however trivial, so they have no excuse not to pay out?

One other point here, insurance companies say they store and share all the personal details (including health and medical information disclosed) with other insurance companies on a "Register", even if you only request a quote and don't take out a policy. Is this legal? Surely without express conscent to store and share that information, insurance companies would be in violation of the Data Protection Act?

Just wondering what peoples thoughts are on these points?

My other question relates to the fee waiver and critical illness.. I've seen on the advice section MSE says critical illness cover used as a way of getting income if you're sick or unable to work, is usually not the best way of buying such insurance, because it's limited in how they will pay out, you have to meet strict criteria and a limited range of illnesses. That aside, the fee waiver option (which is very low cost) seems to be a good way of covering your premiums if you can't work for 26 weeks or more. But is it? Perhaps it would be better just buy a small income protection policy, which will cover the premiums and provide readily available income? The only drawback I can see on income protection is that policies I've looked at so far, only cover 60-65% of your income, and if you're a low earner or receiving state benefits, you won't get very much.

Paul

dunstonh

Anyway, my reasons for wanting life insurance are not to cover any debt liabilities (I'm a single 40 year old) but rather, to just leave something behind for my family and friends if I die and/or to provide a lump-sum payout if I become critically or terminally ill and unable to work.

Before you take out an unnecessary life assurance policy, have you made sure things that are more likely to happen are getting your full treatment? i.e. critical illness cover, income protection, pension provision etc.

The way I've gone about this is by taking a 5 year life term approach and then I can review/renew at the end of the term depending on my financial situation and requirements which may change.... this seems to be a cheaper and more practical way of buying life insurance in terms of planning income needs and living costs etc. But perhaps others disagree and think a whole life policy is the better way to go in my situation? If you have a whole life policy, you can always increase or decrease the level of cover anyway?

As you have no financial need for the policy, then any option is a waste of money. However, the way you are doing it is typically the poorest value over the long term and a risky one. What if you suffer a medical condition in year 3 that prevents coverage after expiry or coverage at a much higher premium?

My other question relates to how much information to disclose... I know they say you should disclose *everything* when applying for life insurance, but I've found that as soon as you mention even trivial things it can drastically alter the cost of the insurance and some insurance companies won't offer you the fee waiver option at all if you have any health issues.

If you fail to disclose information they then find out about then they wont pay out. So, you would have wasted your money. Insurers are allowed to keep the premiums and not pay out when it is intentional non-disclosure.

One other point here, insurance companies say they store and share all the personal details (including health and medical information disclosed) with other insurance companies on a "Register", even if you only request a quote and don't take out a policy. Is this legal? Surely without express conscent to store and share that information, insurance companies would be in violation of the Data Protection Act?

Yes it is legal. no it is not in violation of the data protection act as you agree to it.

I've seen on the advice section MSE says critical illness cover used as a way of getting income if you're sick or unable to work, is usually not the best way of buying such insurance, because it's limited in how they will pay out, you have to meet strict criteria and a limited range of illnesses.

That is not a correct description of CI cover. MSE doesnt actually have an article on income protection strangely. MSE's explanation of CI cover is quite frankly disgraceful and inaccurate. It is less factually correct than a typical Daily Mail article and thats saying something.

The only drawback I can see on income protection is that policies I've looked at so far, only cover 60-65% of your income, and if you're a low earner or receiving state benefits, you won't get very much.

However, the income is not taxable. So, it can be largely similar net. However, dont mix up payment protection plans with income protection plans. Plus, some waiver of contributions/PHI would not go towards the maximum limit (whilst others it can).

amorphix

Thanks for the quick and detailed reply dunstonh.

dunstonh wrote: »

Before you take out an unnecessary life assurance policy, have you made sure things that are more likely to happen are getting your full treatment? i.e. critical illness cover, income protection, pension provision etc.

To be honest, I haven't really and perhaps I should. That said, my income situation is unusual because I have a large surplus income and I'm self-employed. The nature of my earnings means it would take a significantly disabilitating illness to prevent me from continuing earning. So as far as loss of income goes, it's a limited risk priority I think. And it doesn't matter to me really if I sacrifice 2% of my annual income or less on life term insurance, for the possibility of a big payout into my estate I could never match from my savings/assets, if I should die early or get critically ill.

My health in general is not good though, and my mother has just been diagnosed with cancer (at aged 58) so it's shaken me up and put things into prospective, got me thinking about making a will etc.

dunstonh wrote: »

As you have no financial need for the policy, then any option is a waste of money. However, the way you are doing it is typically the poorest value over the long term and a risky one. What if you suffer a medical condition in year 3 that prevents coverage after expiry or coverage at a much higher premium?

That's a good point and something I had not considered. Perhaps then I should separate the two things, life insurance as a whole life policy, and income protection maybe on a 5 year term.

dunstonh wrote: »

If you fail to disclose information they then find out about then they wont pay out. So, you would have wasted your money. Insurers are allowed to keep the premiums and not pay out when it is intentional non-disclosure.

How would they find out? I have no idea how claims procedure works, would it normally involve accessing all your medical records as a condition of payout? I can't see anything in the policy contract which indicates this, it seems to me they rely more on their own doctors.

dunstonh wrote: »

Yes it is legal. no it is not in violation of the data protection act as you agree to it.

With the insurance provider I contacted for a quote (Legal & General) nowhere was I asked specifically whether they could store or share my personal details online. They have sent a quote and policy document which states I have given consent by requesting the quote. Unless it was buried away on the site somewhere in T&C, I certainly didn't tick any box or give express permission, so this to me suggests a breach of the DPA. There's very strict guidelines set down in the law for how companies are required to obtain consent and how they can use and share data. Particularly when it's sensitive personal data and is being shared with third parties. I believe anyway, under the DPA I can certainly stop them sharing that data and ask them to remove it from their database.

dunstonh wrote: »

That is not a correct description of CI cover. MSE doesnt actually have an article on income protection strangely. MSE's explanation of CI cover is quite frankly disgraceful and inaccurate. It is less factually correct than a typical Daily Mail article and thats saying something.

It seems fairly straightforward to me and I agree with MSE's comparison and critical view of Critical/Terminal Illness cover as a means of protecting income and standard of living. Critical or terminal illness cover is not the same as an income protection policy. They are very different things, although people like myself might be intending to use them for the same thing, i.e. to cover a loss of income and cover living expenses in the event of serious illness. The income protection policies from what I've seen are designed to supplement or replace income and are much more flexible on how and when they will payout, for example on unmployment or simply being sick for a period longer than your employer would normally cover. Whereas a critical illness is very specific on when and how they will payout, they're a obviously intended to pay a lump sum in the event you're left in a state with long term disability due to one or more of a range of covered illnesses. In effect, it's like an early payout on the life insurance. And you have to look at these illnesses very closely, because although they will cover heart attacks, strokes and cancer etc, they will only normally do so when it's considered not treatable or leaves a permanent disability severe enough to impact on your day to day living. If you keep yourself healthy, get regular checkups, and with the ever improving advances in medical science, you have to question whether these Critical/Terminal illnesses covers are worth it, unless you're older or at high risk of one of these illnesses.

dunstonh wrote: »

However, the income is not taxable. So, it can be largely similar net. However, dont mix up payment protection plans with income protection plans. Plus, some waiver of contributions/PHI would not go towards the maximum limit (whilst others it can).

Thanks I didn't realise income from income protection insurance was not subject to tax, that makes some difference then and I will certainly re-consider that as an option.

starrystarry

amorphix wrote: »

How would they find out? I have no idea how claims procedure works, would it normally involve accessing all your medical records as a condition of payout? I can't see anything in the policy contract which indicates this, it seems to me they rely more on their own doctors.

At the point of application, you answer all the health questions, the underwriters assess your answers and decide whether they want any further information (eg report from your GP, medical exam etc). If they want a report from your GP they'll ask for your consent for this. If you don't consent, no policy.

At the point of claim, the claims handlers will assess your claim and decide whether they want any further info. Similar to above. No consent, no claim.

stephenni1971

I find it strangely amusing when people come on here having decided to DIY and then proceed to ask a bunch of questions which show they haven't got a clue what they are doing...

If my car broke down I COULD fo to Halfords and get a Haynes manual and try to do it myself - common sense however would tell me the chance of making a horlicks of it would be high. If that happened i would see the effect immediately - the car would shudder and go bang!

Do some DIY on your insurance however and its a different story - you could arrange it and put it in place and all would seem normal - until an event in 10,15 or 20 years time would show you made a mistake. Given at this point you would either be dead or seriously ill - what do you think might happen???

dunstonh

That said, my income situation is unusual because I have a large surplus income and I'm self-employed.

are you aware that the self employed get a lower state pension? The amount lost would require around £120,000 in a pension pot to compensate.

are you also aware that the pension pot you build up is paid out on death tax free to your chosen beneficiary. So, again, do you really need life assurance?

It seems fairly straightforward to me and I agree with MSE's comparison and critical view of Critical/Terminal Illness cover as a means of protecting income and standard of living.

Most providers have around 90-95% payout rates on claims on CI cover. Most advisers will tell you that they see more CI claims than they do life assurance claims. I wouldnt necessarily put CI above a decent PHI policy but you cannot rule out the benefit of a decent CI policy. With your mum's recent cancer diagnosis, I am surprised you view CI so poorly. If she had a CI policy then it would now be paying out.

I know an adviser that has just been diagnosed with cancer and he said that he was confident as all but one of the cancer payouts he has seen on CI policies are still alive years after the diagnosis.

OshayAway

I must say that even though the "Level Term Life Assurance Article" has been updated last week, I'm surprised that Martin still demonises critical illness cover under the heading "DON'T get sucked into 'critical illness' policies..." despite the fact that in 2011, upto 94.1% of critical illness claims were paid.

I personally feel that this, along with following quotation, is a little irresponsible, given Martin's reputation for providing insight on consumer issues, no doubt often read by those who trust his views and probably in need of some guidance.

"While some may be worried that cheaper isn't better, with level term assurance there's no investment element as the payout is fixed, and there's no argument over whether someone is dead! So this is a truly simple policy in most cases, provided you've disclosed adequately. So... It's simply a case of the cheaper, the better!"

... if an adviser were to make statements like these, they could find themselves in hot water. For example, the FSA have introduced a requirement for term assurance comparison site to include a prominent statement to highlight the importance of considering factors other than price alone.

dunstonh

I must say that even though the "Level Term Life Assurance Article" has been updated last week, I'm surprised that Martin still demonises critical illness cover under the heading "DON'T get sucked into 'critical illness' policies..." despite the fact that in 2011, upto 94.1% of critical illness claims were paid.

The way Martin criticises these plans is not logical. Most advisers will tell you that they see more CI claims than life assurance claims and most are paid out.

It is irresponsible of someone in his position and suggests a lack of understanding.

"While some may be worried that cheaper isn't better, with level term assurance there's no investment element as the payout is fixed, and there's no argument over whether someone is dead! So this is a truly simple policy in most cases, provided you've disclosed adequately. So... It's simply a case of the cheaper, the better!"

... if an adviser were to make statements like these, they could find themselves in hot water. For example, the FSA have introduced a requirement for term assurance comparison site to include a prominent statement to highlight the importance of considering factors other than price alone.

I totally agree. Plus, I have had several clients utilise the guaranteed insurability option over the years. Typically an option not found on budget plans. I wonder what those clients would have thought of me and the advice had I chosen a plan that was a few pennies cheaper but lacking in the options they needed. Options they thought they would never need and probably never even knew existed. Had they followed Martin's advice, they would be out of pocket. Not exactly what you call expert money saving.

Cheaper is better would also see some buy yearly renewable term assurance in error. or reviewable premiums instead of guaranteed. As it is those plans that often appear top of the comparison sites.

OshayAway

We are certainly 'on the same page' on this dunstonh. I genuinely don't understand Martin's stand on this. Is it lazy journalism, a desire not to back-track / U-turn on these long held, published views or just a lack of understanding?

Even with the best intentions, I'm sure Martin's opinions do influence individual's decisions, so it concerns me that people could be put off taking out critical illness cover or save a few pence selecting the cheapest life assurance without features such as guaranteed insurability option, terminal illness cover, higher percentage based decreasing term assurance etc. This could clearly be detrimental to the best interests of anyone looking for life cover, regardless of their circumstances.