Posted by Malcolm Wallace | January 29, 2019
My new favourite life insurance product feature
I have been providing financial advice to clients for nearly seventeen years but have recently used a little-known product feature a couple of times. And I think it is really clever! So I would like to share it with you.
It is a feature linked to life insurance policies called ‘Guaranteed Insurability’. It is included in most policies and allows the policy holder to increase the level of cover on the plan in certain circumstances and within certain limits without the need for further medical underwriting.
This can be particularly useful:
- If a policyholder has had any medical issues since taking out their existing policy that may prevent them from putting a new policy in place;
- It is a quick way of increasing the level of cover if it is needed to cover a new mortgage; and
- It avoids having to go through a whole new application process with a new provider.
There are three scenarios in which I have used Guaranteed Insurability recently.
The first was for a couple who were moving house and taking out a bigger mortgage to do so. They had an existing policy in place to cover their original mortgage but since it was taken out one of the policyholders had suffered a serious illness which meant they would not have been able to take out a new policy. So we used Guaranteed Insurability to increase the level of cover on the existing policy to ensure that the new mortgage amount was fully covered without the need for any medical underwriting.
Protecting Shareholder Value
The second scenario was for a business that had taken out Shareholder Protection policies to allow the surviving shareholders to purchase the shares of a deceased shareholder from their estate should the worst happen. The value of the business had increased since the original policies were taken out, so Guaranteed Insurability offered a quick and easy way to increase the levels of cover without having to apply for new plans to ensure that suitable levels of cover remained in place.
The third scenario was a couple who had bought a new house but realised not long afterwards that it wasn’t right for them. They moved again a couple of years later and needed a slightly larger mortgage. We were able to use Guaranteed Insurability to increase the level of cover on the policy they took out to cover the original mortgage so that the new, larger mortgage was fully covered.
So Guaranteed Insurability is a useful tool that can avoid having to rip up a protection policy and start again unnecessarily. We always consider all options available when deciding on the best course of action for a client, including taking out a new policy or using Guaranteed Insurability. Knowing features like these – when they work and when they don’t - adds value to the service we provide as Financial Planners.
RISK WARNING - Life Assurance plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse.