Insurance World

Should you buy cheap term life insurance? It’s an often-asked question to which there is a cheap and simple answer. If you have a mortgage or you have a partner, family or dependants that could suffer financial hardship as a result of your death then cheap term life insurance is a must!

Cheap term life insurance, otherwise known simply as life insurance or term life is a cheap life insurance policy that pays out a lump sum upon your death. The premiums are very cheap and term life insurance policies are very easy to obtain. There are two basic types of term life insurance available from insurers - cheap decreasing term life insurance and cheap level term life insurance.

Cheap decreasing term life insurance

Cheap decreasing term life insurance is very cheap. For only a few pounds each month a cheap decreasing term life insurance policy will pay the balance of your mortgage should you die before it reaches full term. This type of term policy is called decreasing term life insurance because the sum insured decreases in line with your outstanding mortgage balance. The cheap premium remains the same for the life of the policy, making it an exceptionally cheap way to secure life insurance. A cheap decreasing term life insurance policy ONLY pays out a lump sum to clear your mortgage. This type of cheap term life insurance does not make any other provision for the loved ones you leave behind.

Cheap level term life insurance

Level term life insurance policies are not as cheap as decreasing term life insurance, although these types of term policies overall are still cheap, having only slightly higher premiums attached to them. The reason for the premium not being as cheap is that level term policies pay off your mortgage AND leave a lump sum to your partner, family and/or dependants. The sum insured through a cheap level term life insurance policy remains the same through the life of the policy, as does the cheap premium.

A cheap level term life insurance is recommended to run in tandem with your mortgage. However, a cheap level term life insurance policy can run differently from the term of your mortgage. For instance, you could take out a 10-year level term life insurance policy that is separate from any other cheap premium life policy covering your mortgage. The premiums on the 10-year insurance policy will not be as cheap because the term is short, but it will provide you with additional life insurance cover in the unfortunate event of your death.

Insurance companies are not in the business of taking on risks without first obtaining as much background knowledge as possible. This applies whether they are insuring your house, your car, your possessions or your life. There is however a difference in the operation of such policies. Whilst there is nothing surprising in those seeking competitive prices being prepared to change insurers as necessary for cover for the material items in their lives, a change of insurer for life cover is much less likely.

This factor makes it more important for insurance companies to obtain the most accurate information available relating to the medical history of the prospective customer. Information available however makes it clear that the specific information needed is not always what has been provided.

What insurance companies need (and in fact what they pay for) is specific information relating to their potential customer’s past illness which will have, or is likely to have a bearing on their life expectancy. This is after all what life insurance is all about.

What has been supplied by GPs has not always met this core requirement, and in some cases the insurance company has simply been supplied with a copy of the patient’s records. To a GP these records should read like an open book; their training enables them to take a broad view and provide the most accurate summary available relating to the length of life which the patient should be able to expect.

Whilst insurers may have experience of life insurance cases, they are not trained to be able to assess the effects of an illness on an individual, which is why they pay doctors to provide such information. It must be remembered that the future of their company depends very much on them getting reliable facts, which can be used to assess the risks and enable them to do their calculations correctly.

An additional factor is that, in supplying patient’s notes to insurers, GPs are going against the rules on patient confidentiality. They are permitted to respond to insurers requests for information as this will be done with the full knowledge of the patient. The patient will not however expect the insurer to be supplied with extraneous information which has no bearing on the life insurance question.

Now the good news is that the BMA (British Medical Association) and the ABI (Association of British Insurers) have concluded discussions which have resulted in agreement being reached on a way forward which should be satisfactory for all concerned.

On behalf of GPs, the BMA have agreed that reports to insurance companies which are prepared for life insurance applications shall be of the high quality patient specific type required. In return the ABI have agreed that the charges for these reports shall increase by 6% per annum over the first five years of the agreement.

Compounded, this means that in five years the amount per report which is paid by the insurance company will rise by around 34%. This will give hard pressed GPs the incentive necessary to make time for the preparation of accurate medical reports. This point has been made by the BMA in advice to GPs regarding the new agreement. They have pointed out that improvement in the accuracy of life insurance information on which quotations are based is an important consideration, impinging as it does on the quality of life for those patients.

It is good to see an apparently satisfactory outcome to a problem which has been a thorn in the flesh for both the BMA and the ABI for some time.