Some insurance companies offer a ‘no medical life insurance plan’ which guarantee cover regardless of your state of health. These are often sold through major supermarkets or by using television and direct mail promotions. They sometimes include a low value gift as an incentive to purchase, such as a pen.
How do they work?
The no medical life insurance plans offered are ‘Whole of Life’ contracts. These would ordinarily see premiums reviewed every so often and increases applied. However in this case the insurer will charge a level premium. This will remain at a level 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. due to the relatively low level of cover, many buyers regard them as ‘funeral plans’ to pay for their eventual send off.
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. They could otherwise be exposed to those with a short life expectancy applying for high cover only to die quickly. To protect against such events some have a 12 or 24 month period after starting the plan where you are not covered. The payout would only be made if you died after this period had elapsed.
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 is suitable. Consideration should also be given regarding writing the policy under a Trust arrangement. And no-one will mention the alternatives.
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. They can also be arranged quicker than normal life assurance. However you won’t be covered in full for the first year or two.
So what are the alternatives?
You can consider a normal life assurance plan. A full application is required to let the insurer 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, they can apply an increased premium. Such ‘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.
It is often worth letting your adviser try and obtain more cover for you at a lower cost. Our adviser Robert Drury can help you to do this.
THE PLAN WILL HAVE NO CASH IN VALUE AT ANY TIME AND WILL CEASE AT THE END OF THE TERM. IF PREMIUMS ARE NOT MAINTAINED, THEN COVER WILL LAPSE.