Following heightened awareness of the Coronavirus threat since last year, protection providers have understandably looked to support both new and existing customers, whilst also protecting themselves from the increased risk a pandemic could have on their business.
In this article, we are going to look at the use of guaranteed insurability and how advisers can utilise this to assist clients who are reviewing their protection needs.
When the threat from the pandemic first became more prevalent last spring, providers did not categorise Coronavirus as a named critical illness that would constitute a valid claim. This was unless symptoms led to a more severe health condition, such as acute respiratory failure, heart failure or kidney failure etc or resulted in loss of life.
New underwriting approach to Coronavirus
Despite the contagion problems Coronavirus presents, providers have opted not to exclude these claims from their contracts, however, specific Coronavirus underwriting questions have been added at inception of a new policy. These are under the general theme of requiring a new applicant to declare if they have tested positive or displayed symptoms of Coronavirus within the last thirty days.
If an applicant answers positively, then an insurers’ underwriting approach can include the application being referred for manual underwriting assessment, the postponement of underwriting until after 30 days following full recovery or even the request that an applicant reapplies to the insurer after 90 days following the end of symptoms.
Whilst this is a pragmatic approach from providers, ultimately it may mean lengthy delays for clients. Advisers are well placed however to assist clients who already have existing protection policies in place, by establishing if their existing contract offers guaranteed insurability.
What is guaranteed insurability?
In essence, guaranteed insurability is a variation of an existing contract, sometimes known as a life-change benefit. Usually it sees a ‘top-up’ of a client’s existing cover to ensure their changing needs are met and adequately protected following a life event such as:
- Marriage or civil partnership;
- The birth/adoption of a child;
- A house move;
- An increased mortgage or loan;
- A new job or salary increase;
- Increase in rent.
Most insurers will require the client to provide proof of the change of circumstances - cover cannot simply be increased because a client believes they may have an increased threat of mortality or morbidity and therefore wishes to increase their benefit. However, as it’s well known that most protection reviews are prompted by change of circumstances such as new additions to the family or a new home, then it is likely a client will be able to provide the proof that insurers require.
Are there any restrictions?
All providers’ guaranteed insurability options are subject to certain restrictions, such as the maximum age a client can reach before the option cannot be exercised (approximately age 54), or a maximum amount the sum assured can be increased by. Some provider limits are more generous than others; with some insurers allowing a maximum increase amount of up to £200,000 or 100% of the original sum assured, versus more modest permitted increases of up to £50,000 or 25% of the original sum assured.
Additionally, providers may stipulate that when exercising their guaranteed insurability option, the insured must do so within so many weeks of the life-event occurring - ranging from 13 to 26 weeks of the event taking place. Insurers may also permit a limited number of amendments to take place during the lifetime of the policy, and no amendments at all within the latter years of the term.
What is crucial to note is, provided the change is within specified limits agreed by the insurer at the start of the policy, then cover can be increased without a client undergoing additional medical underwriting or providing medical evidence.
Offering a safety net for clients
Owing to the understandable caution insurers have in accepting new business and the delays an applicant may face if they have answered positively to underwriting questions around Coronavirus, then guaranteed insurability can afford a reassuring safety net. Clients who need to review their existing protection policies may be eligible to increase their cover at the point of request and would not be subject to delayed referral decisions following a positive Coronavirus declaration.
As specific Coronavirus underwriting questions are likely to remain for the foreseeable future, advisers have a key role to play in reminding clients that they can utilise existing cover and avoid unnecessary delays if their protection needs have changed.