Some large insurance companies offer a ‘no medical’ life insurance plan which can guarantee you cover regardless of your state of health. Sometimes these are sold through major supermarkets or by using television and direct mail promotions, often including a low value gift as an incentive to purchase.
The no medical life insurance plans offered are ‘Whole of Life’ contracts which ordinarily would see premiums reviewed every so often and increases applied. However in this case the insurer will charge a level premium. This will remain level but which they calculate will be enough to cover their costs given your estimated life expectancy.
In nearly all cases the minimum age is 50 or higher. Joint life contracts cannot normally be taken out.
So are no medical life insurance plans any good?
They certainly have limitations. Because the insurer takes on the risk of people with poor health applying, leading to early claims, they charge much more than normal for the cover. They will also give only low levels of cover, as they could be exposed to those with a short life expectancy applying for high sums assured only to die shortly afterwards. To protect against such events some have a 12 or 24 month period after starting the plan where your estate would only receive the premiums paid in if you died. So you are effectively not insured for the first one or two years.
Index linking is rarely allowed so the cover will lose pace with inflation. And if you live a long time, you could find you have paid in more than the plan would pay out.
With ‘off the page’ and online applications you will not receive advice as to whether the plan should be in a Trust or indeed whether the plan is actually suitable for you at all, nor what the alternatives might be.
So who are they good for?
These plans have appeal to those who refuse to reveal medical details to insurance companies. They will also appeal to those who want the peace of mind of leaving enough for such things as funeral expenses after they have died but do not want to go through a full life assurance application and assessment. They can also be arranged quicker than normal life assurance (although note that you won’t be covered in full for the first year or two).
So what are the alternatives?
A full application is normally required for life cover so that the insurer can decide whether you are a ‘normal’ risk for them to cover. However, they will often still provide cover even if there is a history of ill health for you or your family – parents, brothers and sisters only. If they feel the risk is high, then they can apply a ‘loading’ – or increased premium – for a period of time or for the life of the contract. Loadings will depend on the severity of the illness, the type of contract and the length of time you want to be covered. Other lifestyle factors such as a high body mass index (BMI), risky occupation, smoker status, dangerous hobbies and so on can all affect the risk you present and so the premium charged.
Rather than simply accept a no medical life insurance plan with a higher than normal premium and lengthy waiting period for cover, it is often worth letting your adviser research the possible outcome of a full application and let them try and obtain more cover for a lower cost.