Protection can be a necessity for some clients, yet they find themselves declined by mainstream insurers. Roger Hillier explains impaired health policies
The downturn in the mortgage market and changing economic forces is having an adverse impact on the protection market. There is however an overlooked market sector that may be less vulnerable to decline and which can offer significant opportunities for intermediaries. This is the sector that offers protection to customers typically declined by mainstream providers.
When a customer is declined for life insurance by a such a provider, many people assume that cover is not available anywhere. However, this is not always the case because there are product providers that specialise in assessing customers with impaired health.
While there are no official statistics, Partnership estimates the market for impaired lives could be as much as 5% of the total market for term and whole of life assurance.
The impaired health sector differs in several ways from that for ordinary rated lives. For impaired lives, each case has to be assessed on its own merits as no two are the same. The process may take a little longer but the applicant stands a better chance of getting cover. The second difference is the processing of this business.
The specialist product provider will make an initial high level assessment based on medical history details provided by the customer to give an indication of whether cover can be provided and the potential premium. This initial indicator is important as the premium will usually be loaded and the customer needs to consider affordability. If the customer can afford the premium, then the next stage is submitting an application form. The provider will then obtain a general practitioner's report and fully underwrite the case. It is a slightly longer process than for ordinary rated business but worth the extra effort as a significant number of declined protection cases can be converted into acceptances.
Feeling rejected
While it is difficult to generalise on the sort of medical history that is declined by mainstream providers and accepted by specialist providers, a large percentage of these cases are diabetic. Another significant underwriting factor is a customer's lifestyle. For example, if the customer drinks or smokes it makes it trickier for the underwriter to make an assessment. The following customer case studies give a flavour of the sort of medical histories that can be covered.
- Decreasing term assurance
A male aged 60 requires cover for his £84,000 residential mortgage for the remainder of the mortgage's five year term. His medical history includes having non-insulin dependent diabetes since 2000 with several complications. He used to be a heavy smoker (40 cigarettes day) and had a stroke in 2001.
Underwriting rating - +600
- Level term assurance
A female aged 41 who needs £50,000 cover for a 10 year term. The medical history includes several relevant conditions. Since 1997, she has suffered from high blood pressure and chronic steroid dependent asthma requiring nebulisation several times a week. She also has a body mass index of 36 (normal range 19 - 28).
Underwriting rating - +550
- Gift inter vivos
A 77 year old female demonstrates the role term assurance can play as part of inheritance tax (IHT) planning. The seven year single premium policy provides her with £300,000 cover on a sliding scale. The medical history includes two aspects relevant in the underwriting assessment. In 1992, a prolapsing mitral valve in the heart was diagnosed. She also suffers from high blood pressure. As a non-smoker she has no lifestyle issues.
Underwriting rating +100.
In a significant number of cases it is crucial that customers with health impairment obtain protection. This can be for business purposes, to support a residential mortgage, part of their IHT planning or any other personal reason. While they would not be accepted by a main standard product provider, it is reassuring to know that a few providers have products targeted at these individuals.
Roger Hillier is head of equity release and protection product development at Partnership.
