The Perks of Protection
Protection insurance is designed to provide a financial lifeline for families if disaster happens. But, there can be unexpected extra benefits from taking cover, whether or not you claim, so we take a look at what they can be.
There are about 19 million families in Britain, many of whom would struggle to get by if the main breadwinner died or became too ill to work.
Despite this, every year just one million people buy life insurance. A further 500,000 take out critical illness cover while 100,000 workers purchase income replacement insurance that would help keep the wolf from the door if long-term sickness struck.
One reason for low take-up of cover is that for most customers, premiums come out of their bank account year after year without a claim being made. It seems like money down the drain.
I RECEIVED £86,000 WITHOUT EVEN PAYING A PREMIUM
A civil servant aged 45 nearly fell off his chair when he discovered a critical illness insurance policy he thought he had only discussed with his mortgage adviser paid out in full – even though he had not paid a single premium to the provider.
A keen cyclist, he remortgaged his West Country family home through a mortgage broker and at the same time he talked to the adviser about taking out a life and critical insurance plan to cover the loan.
But a few days later, while on a cycle ride he suffered serious chest pains and was forced to pull over.
An ambulance was called and he ended up in hospital diagnosed with a heart attack brought on by a blocked artery.
When back at home recovering from surgery, he contacted his mortgage broker to cancel the insurance application.
He says: ‘It was going to cost £100 a month and I thought there was no point having the plan.’
To his amazement, the policy from Royal London was already in place and his heart attack, one of the conditions covered by the policy, triggered an immediate payout of the sum assured – £86,000. He says: ‘I nearly fell off my chair.’
He was unaware that the insurer, on receipt of the policy application, had automatically provided free life and critical illness cover to carry him through the mortgage application period.
The money has allowed him to take his time to decide what to do with his career. He is now back cycling to help regain his fitness.
He says: ‘The money has allowed me to pay off the mortgage and to make changes in my life. I am so grateful.’
The broker said ‘Insurers are aware that people don’t necessarily want to pay for a policy until their mortgage is organised. Royal London is ahead of the game on this but some others do offer free cover for accidental death during the mortgage arrangement period.’
THE EXTRA PERKS PROTECTION CAN BRING
The peace of mind provided by protection insurance is not always enough to keep customers satisfied. This has prompted insurers to add perks and benefits to policies that customers can tap into even if they never make a claim.
Those policyholders who do claim do not just get vital cash but also extra help such as access to counselling, specialist therapies, second medical opinions and, in the case of income protection, back-to-work support.
Several providers also offer free cover for children or discounts on other services, often linked to encouraging healthy lifestyles.
VitalityLife (formerly PruHealth) is probably the most active in the lifestyle area and has developed a menu of benefits aimed at getting – and keeping – people fit.
About 120,000 policyholders have taken advantage of half-price health checks and made ten million discounted gym visits in the past four years.
Those willing to take a health check every two years – at a cost of £10 a time – can also get discounts on the company’s life insurance.
There are other benefits such as access to legal services and even free coffee.
A further aspect people may not appreciate is that while being underwritten for cover may seem like a chore, if the insurer asks for a medical you could consider it as a free health check where any issues might be detected soonest.
One challenge is getting the message across about the extras – a situation a handful of insurers is trying to improve by reminding policyholders through annual statements.
Insurers such as Zurich and Old Mutual Wealth believe that giving customers such a prompt is vital.
Paul Roberts, head of protection at wealth manager Old Mutual Wealth, says: ‘We write to clients every year to remind them what they can claim on and the benefits they could make use of. We confirm the current premium and the sum insured and what would be involved if they increased their cover.’
He adds: ‘Additional benefits are often forgotten about but they add significant value to a policy. Parents who have one of our Protect critical illness policies, for example, can claim up to £25,000 per child or double if both parents have cover. Last year we paid five child claims, four for cancer and one for kidney failure.’
VitalityLife (formerly PruHealth) is probably the most active in the lifestyle area and has developed a menu of benefits aimed at getting – and keeping – people fit.
PERKS WITHOUT CLAIMING
DISCOUNT DEALS: Some insurers give policyholders money off other products. LV= policyholders can get 10 per cent off the cost of the company’s motor and home cover and 5 per cent off pet and travel plans, while More Than gives 15 per cent off home cover.
As well as 20 per cent off insurance policies such as home and other protection cover, Aviva gives members discounts on a range of services, including 25 per cent off gym membership and half-price MoTs for cars. VitalityLife provides discounts on gym and WeightWatchers membership and on Eurostar travel.
COUNSELLING AND ADVICE: Access to telephone or online services for free guidance on matters such as health and relationships to legal and work worries is available from many providers including LV=, Zurich, Aviva, Aegon, Royal London and Beagle Street. This includes second medical opinions.
Aviva and AIG Life provide access to the Best Doctors service, even if policyholders have not made a claim. The independent, international service taps in to thousands of doctors worldwide who can review a diagnosis or treatment plan. Old Mutual offers similar help through its There For You service.
WILL-WRITING: Insurers Beagle Street and British Friendly are among those that give new policyholders the chance to have a basic will drawn up free of charge.
CARERS: Provider British Friendly will pay £125 a week if a policyholder’s partner or child needs full-time care of 35 hours a week for a least four weeks (paid for up to a maximum of 26 weeks). This might be paid if a partner or child suffers a serious illness such as cancer or an injury such as a broken leg.
CHILDREN: Many critical illness plans automatically include free cover for dependent children. Legal & General, for example, pays up to half the value of a policy’s cover (to a maximum £25,000) if a child is diagnosed with a serious illness.
Aviva offers new parents free life cover worth £15,000 for 12 months if they have a young child (up to the age of four). They do not need to have an Aviva policy to apply.
Health check gave me an early warning on Type 2 diabetes
Just applying for protection cover can provide unexpected benefits. Chris, a mortgage broker, was saved from serious health complications as a result of being diagnosed with diabetes.
He applied for life and critical illness cover from VitalityLife about two years ago.
As part of the process, the 27-year-old took a health test at a local pharmacy which included a blood test that revealed he had higher than normal blood sugar levels.
Chris, who runs his own mortgage broking business, says: ‘It turned out that I had Type 2 diabetes which was a real shock.’
The early warning meant he was able to take action by cutting out sweet things and taking more exercise.
His £500,000 of cover costs £79 a month and includes cover for son William, four.
Chris also earns points for going to the gym and completing thousands of steps each day recorded on his mobile. He cashes them in for free cinema tickets and discounts at health spas.
Chris says: ‘As a mortgage broker I know how important protection cover is. I had a couple recently take out a mortgage where the woman was just 29 and the husband 35.
‘They turned down life cover on their loan but just eight weeks into the mortgage the husband passed away suddenly, leaving his wife to meet the £1,400 a month repayments on her own. It really brought home the importance of this type of cover.’
PERKS AFTER THE EVENT
ILLNESS AND BEREAVEMENT HELP: Recognising that the death or serious illness of a breadwinner takes an emotional toll on families, many providers give free access to services offering practical and emotional support for those left behind.
One such service is RedArc, where a dedicated nurse offers advice on coping. Providers include Royal London, Canada Life and Scottish Widows.
A similar service, offered by AIG, is Winston’s Wish, a charity supporting families through bereavement, with a particular focus on helping children.
REHABILITATION: Since insurers prefer a policyholder to return to earning, if possible, many offer back-to-work support services.For example, LV= will arrange for physiotherapy, careers guidance or even support for someone who chooses to go self-employed.
Where someone claims who has a mental health issue and wants to return to work, the insurer would stop paying if they go back to work and are earning, but would continue to cover counselling sessions for a period.
INCREASING CONFIDENCE INSURERS WILL PAY
The main incentive for buying protection cover is to provide a financial cushion if sickness or illness strikes. But policyholders need to be confident that an insurer will pay out.
Although there are always cases where people will have claims rejected, the industry has improved its payout record in recent years.
VitalityLife, for example, has just published statistics showing it pays 99 per cent of life claims, 93 per cent for critical illness and 94 per cent for income protection.
Despite such reassuring figures, just one in ten people is likely to buy cover that would pay an income if they could not work, according to new analysis by insurer Cirencester Friendly.
Its research found that nearly half of families would rely on the State for financial help if they could not work, which could mean a family on average earnings seeing their income plummet by 75 per cent – or £300 a week.
Rebecca Young, head of marketing at Cirencester, says: ‘The State’s average support is just over £70 a week, a fraction of the average take-home pay, which stands at about £430 a week.’
Few of those surveyed realised that many income protection policies will pay out potentially until retirement if the policyholder is unable to return to work.
A former pub head chef, aged 46, from Exeter in Devon, is relieved he reconsidered the temptation to cancel his income replacement policy.
The chef, who is married, was the main breadwinner when he collapsed at work in 2013 and was unable to work for three years. Diagnosed with anxiety and depression, he was signed off work by doctors.
He says: ‘The income from our policy meant we could keep our home. It was a great relief as I considered stopping the cover a couple of years previously.’
The policy paid an income of about 75 per cent of his previous wages in the first year, 65 per cent in the second and 50 per cent in the third. He continues to pay the £36 a month premium.