With the continuing global economic crisis, there has been a lot in the press recently concerning the importance of life insurance at such a time and whether it is even certain that we’ll receive our money when we are due it. This is particularly relevant in the UK at the moment with the Janice Wild Vs Windsor Life case, but the aim of this article is to highlight that this is an isolated incident and that we shouldn’t lose trust in the UK life insurance industry as a whole. Typically though, there are certain times when policies will not pay out and I shall describe some of them here:
Death by Hazardous Activity
Hazardous activities or extreme sports are often hard to define, but it is usual for insurance companies to stipulate that should a policyholder die during some kind of dangerous recreation or pastime they will not pay out. Consequently, it is important that if you are considering a life insurance policy and enjoy any sport that necessitates any degree of risk: such as skateboarding, rock climbing and sky-diving – then you should be completely honest with your insurance company and ascertain whether you need extra or specialist cover at the outset.
Death by Suicide
Insurance companies will often refuse to pay out when the policyholder has committed suicide. It is typical of each life insurance policy to include a suicide clause which nullifies the policy if suicide occurs, usually, within two years in the US – whilst some state-wide policies have statutory suicide clause covering 1 year. Additionally, certain policies may reserve the right to reject a claim should the holder commit suicide at any time.
Death during War
It is typical of insurance companies to not pay out should the policy holder die during an act of war. This is simply because an event that is as unpredictable and extraordinary as war is difficult to calculate in risk terms. Consequently, the definition of “war” amongst companies is usually quite broad and might vary between each, but will likely include: civil and international war, declared and undeclared war, and any conflict between military organizations. It must be acknowledged that acts of terror confuses matters further and are regarded as acts of war by some, but not others.
Death in a Restricted Country
Life insurance companies may also refuse to pay out if the policyholder dies in what is considered a “Restricted Country”. These usually refer to places where disease or conflict leads to the deaths of many of the population. Similarly to death during war, it is too difficult for companies to judge the risk of an individual in such an unstable country. In circumstances where policyholders must travel to such destinations, a policy rider is usually purchased for the duration, and at an increased premium, in order to ensure the individual is covered.
Circumstances when life insurance companies don’t pay out
On a health-binge? Why you should review your life insurance policy
The global economic crisis is causing all of us to review our outgoings and to reconsider whether we really need to spend on items we used to take for granted such as life insurance. However, whilst many of us are eager to reject the idea of life insurance as a necessity at all, we all know that the best way to really save and benefit from the security it offers is to be a healthier person. So how healthy are you? And could you be benefiting from kicking some of those indulgent vices into touch?
Smoking
Whether you are a smoker or not can make a huge difference to the amount you spend on life insurance premiums. UK No Smoking Day occurs on the 11th May and highlights the many benefits of quitting, and aside from the obvious health implications, the financial ones via savings on your life insurance are also very great. According to The Guardian, stopping smoking for a year when you reach the age of 40 can result in premiums 50 percent lower than they would be for a continuing smoker. Taking actual costs into account, an individual could save over £100 a month.
Alcohol
Similarly, alcohol consumption can affect life insurance prices also. This information increases in significance when we consider how much is adequate to drink in health terms. The Telegraph reported last December that insurers were being forced to push up prices after increases in cases of liver cirrhosis, heart problems and cancers which may be linked to alcohol consumption – whilst statistically 20 percent of UK men and 30 percent of women are said to drink ‘hazardous’ amounts. 50 units, i.e. an amount that is considered harmful can result in £300 extra on premiums over a year. Yet, an article at bytestart.co.uk highlights the importance of re-taking a liver-function test should you cut down, as this will likely be taken into account during a life insurance review.
Obesity
Being obese to the point that it affects your health, and with levels of clinical obesity increasing faster in the UK than anywhere else, insurance companies are beginning to take note. Statistics form whatprice.co.uk look at the average 40 year old (at 12 stone) compared to an obese person of the same age and who will weigh 18 stone. Cover that is worth £100,000 would cost 50 percent more for the latter individual, but they may even be at risk at not being granted cover at all.
Whilst the recession is causing many of us to cut back on spend, and to re-assess the financial aspects of our lives, by acknowledging the savings made by those with a healthier lifestyle it seems that 2009 might be the best year to focus on our health habits as well as our money habits. And if you are healthier now than you have been since buying life insurance, review your policy and compare prices – and keep them informed even if you have just joined the gym. It might be worth more than you had realized.
Life Insurance – It Just Got Interesting!
For the majority of our lives, the subject of life insurance has traditionally been one that each of us has probably wanted to ignore. It is often regarded as tedious, frustrating, dull, and not altogether essential – at least until you reach that age. On another level, despite its importance and the inherent sensibleness that is evident when an individual is seen to have taken out a policy, it is still very difficult to make the subject of life insurance seem interesting, positive and relevant – without seeming preachy.
Of course, all that is about to change. Drawing influence from a blog post at wnyc.org entitled: Life Insurance…Not So Dull After All, the interview contained therein highlighted the fact that, aside from what it might mean from person to person in regards to when/whether they should be thinking about it, life insurance on an industrial and business level is one of the most important factors in regards to the recession – and consequently one of the most discussable subjects for the press.
In that post, expert Aaron Elstein points out the likelihood of further bailouts for American life insurance (many insurers remain in a strong position) companies due to certain investments in bonds (i.e. mortgages) which have declined in value. In turn, such declining bonds will be sold at a loss and certain insurers will be losing money – and, in simple terms, may well struggle to pay out claimants without government aid. If that doesn’t sound like the makings of a John Grisham novel, further life insurance-orientated news stories seem like the stuff dreamt up by Hollywood scriptwriters.
The Los Angeles Times (and other places) reported on April 8th of the story of two middle aged women who’ve been arrested and accused of life insurance fraud on a grand scale. The women (aged 60 and 66, and thought to have worked with others) are said to have bought life insurance policies in the names of fictitious people, waited until the policies had matured, held fake funerals, and then received the payouts from their own beneficiary bank accounts.
The couple are facing several charges and are said to have carried out two fake insurance claims for individuals called Jim Davis and Lara Urich, leaving agents etc stunned at the lengths some will go to. The Times stated: “the defendants are accused of faking the cremation of a "Laura Urich" and collecting $5,000 in funeral expenses and $50,000 in insurance death benefits through two purported beneficiaries, according to court records.” Aside from being an important thing to consider when each of us reaches that certain time in our life – in 2009, it seems that life insurance could be the most intriguing subject of the time. And a great reflection of life in the 21st Century.
Centenarian Life Insurance: The future of the insurance industry?
As the world population increases, it has become less of a surprise that economically developed countries have begun to experience the trend of an aging population. This has resulted in the increase of life insurance policies that are specially tailored to the needs of older people.
Such policies, usually sold as final expense insurance (but sometimes referred to as preneed or prepaid insurance), have been introduced by some insurers in order to give older members of the public the opportunity to buy insurance as they may not be able to afford a standard life policy. Final expense insurance policies typically offer immediate cover (although, a vesting period isn’t uncommon) which does not expire over a certain time, and the payout is usually used for funeral expenses such as travel and hearse hire.
The benefits of final expense insurance for customers, as well as companies eager to make themselves stand out from the pack, are quite obvious – so what does the future hold for the industry? According to a press release sent out by specialist life insurance company, Life Insure, they have embarked on an unprecedented move – to offer an insurance policy exclusively for those aged 100 or over.
On first reading, the notion seems absurd but possible at the same time. For someone who writes about the insurance industry frequently, I have seen many interesting trends and gimmicks develop in this highly competitive market, and one insurance company offering cover for a small but growing target market does seem like quite a good idea. Suffice to say, I was a little disappointed to find that the policy does not explicitly exist in reality – and was most likely a PR stunt. This conclusion was further enhanced by the comedic tone of the release and the overly senile responses of the centenarians who attended the product launch. (‘Gary Foss was more concerned with taking a nap’!)
That said, the prospect did get me thinking. Whether such policies do or do not yet exist, it doesn’t seem too far fetched to believe that they will do soon enough. The fact that the population is aging is one thing, but as a marketing aid – being the first company to seriously offer centenarian life insurance will no doubt be a very positive step indeed. Not to mention a sign of changing times!
Life Insurance - A Short History
With the recent economic meltdown, the insurance industry has become the subject of news reports and articles all over the world as the US government offers more and more bailout capital to fledgling companies. As I write this (2nd March 2009), AIG, including their subsidiaries American Life Insurance Co. and American International Assurance Co., have been given $30 million and this led me to write this article: A Short History of Life Insurance.
Whilst the act of insuring dates as far back to 5000 BC, life insurance is said to have originated in Rome with funeral expenses being covered by “Burial Clubs”. In his book, The Roman Cult of Mithras, Manfred Clauss describes the ‘Collegia’ whose primary function may have been ‘to provide a decent burial for their deceased members,’ at a time when many would have had limited financial resources.
Insurance all but disappeared in Rome as the civilization fell in 450 AD. However, in the East similar insurance arrangements have lasted since 1000 BC, such as ‘community insurance’, and similar ‘burial societies’ established by Buddhists. Such schemes were also established in England. These were called ‘friendly societies’ in which donations were kept for emergencies.
In late 17th Century, and against the trend of the rest of Europe, life insurance began being promoted – particularly in London. At this time of growing sea-expeditions and importing/exporting, Lloyd’s Coffee House (a café frequented by sailors, shipbuilders, and merchants) became the hub for reliable shipping news and communities of sailors who would insure cargoes etc.
Lloyd’s Coffee HouseToday, Lloyds of London is still an important British insurance market. The developing English insurance model (that was further consolidated by Nicholas Barbon who opened a buildings insurance office after The Great Fire of London) soon became adopted worldwide.
The Great Fire of LondonIn the US, the first life insurance company available to anyone was established in 1761, though it wasn’t until the New York Fire disaster of 1835 that the public began to fully understand its importance. Public liability insurance arrived with the birth of the automobile at the end of the 1800s.
New York Fire disaster of 1835By the turn of the 21st Century, the USA became the second biggest market for life insurance premiums after the EU. In late 2008, after the collapse of the US housing bubble, financial institutions began to feel the knock on effect of the “Credit Crunch”, the first being the mid-sized UK bank Northern Rock, followed by the subsequent bankruptcy of the financial services firm Lehman Brothers. This caused the governments of the US and UK to intervene with certain companies caught up in the crisis, including AIG who have recently reported the biggest net loss in history at $61.7 billion for their last quarter.
Life Insurance – There’s more to giving up smoking than just getting healthy
March the 11th sees the 25th anniversary of No Smoking Day, a day of national recognition and support for those who want to try and give up.
Over the past 25 years the campaign has grown from an awareness day organized by a group of individuals with an interest in health, to becoming a fully registered charity in 1991, and onward to employing a full-time staff and becoming one of the best-known days of its type. In light of the ongoing global economic difficulties and the ‘credit crunch’, this year the campaign is more geared towards how smokers can save money if they give up – alongside the well-known health benefits.
So how can giving up smoking at this time help you save m
oney?
The first financial saving to consider, is what you might save on a day to day, week to week, or year to year basis, if you were to give up smoking now. According to myfinances.co.uk, the average packet of cigarettes costs £5.67 in the UK.
If we assume that the average smoker gets through a packet a day, a week of non-smoking will save you £39.69, a month of non-smoking will save you in the region of £177.75 – yet over an entire year you will be set to save a massive £2,069.55.
It is fair to acknowledge that not everyone who wants to give up smokes £5.67 worth of cigarettes everyday, but during these times of belt-tightening and cutting back, the prospect of saving over a thousand pounds after a year of non-smoking must sound tempting to anybody.
However, savings from giving up smoking don’t stop with the cost of cigarettes. As life insurance companies become more and more competitive whilst frugal customers threaten to cancel their policies, now is the best-time for non-smokers to benefit from slashed monthly premiums in comparison to their smoking peers. Savings of up to 50 percent on payments can be made for non-smokers, whilst comparison website moneysupermarket.com estimate a 30 year-old male smoker will spend over £8,000 more on life cover than a non-smoker of the same age.
The financial benefits of giving up around the 11th March go even further though. With the growth of No Smoking Day year on year, many businesses, including supermarkets and shops, have tried to get a piece of the action. Supermarket giant, Asda are discounting prices of nicotine patches and gum in an offer to help their visitors stop at this time. It certainly seems that, in terms of saving money from stopping smoking, March 2009 may well be the perfect month to give it a try.
Life insurance, the last thing on our minds
So where are us Brits cutting back when it comes to our monthly spend? And when it comes to some of the things we’ve been idly paying for until now, are we in danger of forgetting how essential these things actually are?According to firstrung.co.uk, in a recent survey 42 percent of those asked said that should they be forced to cut back on one monthly payment, they would stop paying into their savings accounts. Additionally, from a survey of families carried out by creditchoices.co.uk, 37 percent would claim to reduce their savings, in a move to seemingly ignore the consequences this could have for the future.
That’s not to say that we are not also cutting back in less essential areas. In the same survey just over half of people asked said they would stop spending money on leisure activities and holidays. However, this is not only due to the fact that we have less credit due to the crunch, but also because the price of raising a family has increased at a significant rate recently – 4 percent in a year, and a full 38 percent in the last five years.
This is where the respective meanings of ‘essential’ and ‘non-essential’ seems to be getting a little foggy, for it doesn’t seem illogical to me that I would consider paying for a holiday as not essential. However at the same time, the statistic of just 52 percent of families choosing to cut back in this area suggests there is a great portion of people who would disagree with me.
Similarly, whilst I would consider life insurance to be closer to the ‘essential’ end of the payment spectrum (especially where raising a family is concerned), there are a fair amount of people who are eager to stop those payments despite the risk to future security. Interestingly, there is a significant difference between those asked in the ‘individuals’ survey discussed by firstrung.co.uk, compared to those asked in the ‘family’ survey by creditchoices.co.uk. The former survey reports that five percent would neglect their life insurance policies, whilst 23 percent are said to be reducing or cancelling life insurance in a family situation.
So is this percentage difference because of the greater need for families to cut back in more areas, or because of a gradual change in what we as a nation prioritize when it comes to spend? Essentially, do we feel more obliged to have a holiday now than we did in the past? It’s a complex question, but it seems to be a worry to some in the business who are also arguing that long-term financial security such as life insurance is more important now than it has been in the past. To those people, even the thought of cutting back in such an area does not seem sensible at all.