In sickness and in health
In 2004, over 1.5 million potential years of life were lost in England and Wales by all persons who died before reaching age 70, 61 per cent men and 39 per cent women. This is perhaps not the most uplifting start to an article, but it is a stark reality and one which mortgage advisers need to be acutely aware of.
Although we provide life insurance, we would agree that very often it is not the highest priority. For someone who is healthy, often a critical illness policy may be a far more appropriate choice for a client whose finances are limited, or even on occasions we can understand, but not condone, cash-strapped clients ignoring protection altogether.
However, for clients who have a pre-existing medical condition, the argument is much more complex as their probability of getting standalone critical illness cover is highly unlikely and the probability of dying, and thus leaving a mortgage or loan that may be unserviceable, is high. Furthermore, the addition of a critical illness policy to mortgage protection is often more appropriate and more economical.
Calculating premiums
The standard expectation of mortality is referred to as a ‘100’ or ‘100 per cent’. Where someone has an illness or health condition that could affect their life expectancy, then the excess mortality is expressed as a percentage above standard mortality for the population at that age. Thus, if a condition is expected to double mortality it is described as ‘plus 100’, if it is expected to treble it would be ‘ plus 200’.
Increased mortality is, in general terms, additive – that is to say that if a client has an excess mortality due to heart disease of plus 200 and also asthma at plus 100 then his excess mortality is plus 300.
The problem for the adviser and client alike is that as soon as the mortality score goes above plus 200, the probability of finding cover is diminished and the mainstream insurers generally have a ‘cut-off’ point of plus 400, after which they would decline to offer terms.
A changing landscape
The provision of life insurance to cover mortgages and family income needs has, over the last decade, resulted in increased automated underwriting. This has led to reduced costs and greater competition, which has resulted in a much cheaper product for the end-client.
The corollary of automation, was however, that clients with impairments were, by necessity, excluded from the system and typically referred to underwriters who had discretionary limits, and declined latterly when companies became fully automated and discretion was ceased.
How specific medical conditions impact on underwriting?
There are many misconceptions about life insurance and what impacts on underwriting. Also, the landscape is changing almost daily with dramatic improvements in the treatment of certain conditions. Other medical conditions such as testicular or breast cancer, which once may have been terminal and hence highly loaded, are now much less life threatening.
Special requirements for impaired clients
The fact that your client has a medical condition should not slow the application process as most providers would not require a medical, regardless of how severe the condition is. Also the whole process has been simplified with providers using supplementary questionnaires to reduce the complexity of the application form for medical conditions such as a heart condition, a stroke, a tumour, or diabetes.
What is normal is to request further information from the client’s doctor in order to provide a guaranteed and binding quotation. It is extremely rare to request a medical examination and this whole process normally takes no more than three weeks to complete.
Policy diversity
There is just the same policy diversity for the impaired market as the mainstream standard market, with level term mortgage protection and family income benefit being readily available to clients.
Until recently getting a higher sum insured could be almost impossible, which proved very difficult for brokers with clients mortgaging larger properties. Now sums assured of up to £250,000 for very severe cases are available on both a single and joint life basis, which has increased product choice, diversity and the audience the products are open to.
In conclusion, the automation of underwriting has meant that many clients became effectively uninsurable due to the scarcity of traditional underwriting and the ability to place plus 300 and above mortgage protection cases. However, at the same time the general improvement in medical science has meant that those clients that were failing the automated systems could get cover at a reasonable price from specialist product providers.
