Are Life Insurance companies unfair or simply being logical? Newspaper reports in the early months of 2008 that life insurance companies will start charging overweight customers up to 50% more in premiums, begs the question whether they are being unfair or simply driven by actuarial logic.
Some people might consider it "unfair" that because they are overweight, they should have to pay, for example, £1,500 a year for a £150,000 life cover whereas his leaner peers will be paying only £1,000.
But the sheer logic of the situation is that life insurance companies are in the business of assessing the risk of an early death of their policy holders. And obesity is a medical condition with attendant health problems that can lead to an early death. Obesity has been linked as a major contributor, for example, to heart and liver problems, diabetes and certain forms of cancer. Many insurers, therefore, are paying increasing attention to the critical "body mass index" (or BMI) in new proposals for life cover.
The body mass index is a simple measure, widely used in medical circles, as an indicator of obesity. It is the index derived by dividing a person's weight (in kilograms) by their height (in metres) and dividing that result by their height (in metres) once again. A resulting index of 30 or more is classified as "obese" and a result of 40 or more as "very obese". According to responses to press questions from Britain's largest life insurance company, some 13% of new proposals are being made by individuals reporting a body mass index in excess of 30. This appears to be the marker at which many life insurance companies are introducing higher premium rates.
The actuarial logic of the situation is not lost on the Association of British Insurers, of course, who have said that obesity increases the risk of contracting certain diseases. A spokesman commented that premium increases for the overweight should be considered in the same light as those increases already applied to smokers or to those with previous or pre-existing medical conditions. In fact, when taken together, the difference in the cost of premiums for someone of the same age and gender in the lowest and in the highest risk groups can be as high as 400% - reverting to the example used earlier, that would be the difference between £1,000 and £4,000 each year for £150,000-worth of life cover.
Just in case these figures give any encouragement to lie about your weight or height on the proposal form, there is a salutary warning from the Financial Ombudsman. The latter recently determined a disputed claim arising from the death of a 37 year-old man who had declared to his insurers a height of 6ft and a weight of 16 stone. He died some months after the start of the life cover, but his life insurance company rejected the claim when it was revealed that he was actually 5ft 9in tall and weighed 21 stone (measurements that would have increased his premium by 275%). The Financial Ombudsman ruled that the insurer had been right in rejecting the claim.
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Unfair or Logical
How do I save money on Life Insurance?
When shopping to buy life insurance, the best way to save money on your cover and still get everything you need is to shop around to find a provider that has what you want at a reasonable price.
Life insurance is an insurance policy that will pay out a specified amount of money to a beneficiary at the time of your death and will help your loved ones to pay for your funeral expenses as well as have some money left over for their own needs. You should consider the different types of life insurance to make sure you have the coverage you need. The various types are:
Permanent life insurance
This type of life insurance has a cash value that is paid to your beneficiary at the time of your death and this cash value increases over the life of the policy. You can benefit from having this kind of cover while you are alive because you can draw off this value and invest it for your own needs.
Term life insurance
Term life insurance has the cheapest cover because it is for a specific length of time. Once that term runs out so does your life insurance, but you can renew the policy for a further term.
Whole life insurance
Whole life insurance has a specified value in a guaranteed benefit and the premiums stay the same for the life of the policy.
Universal life insurance
Universal life insurance has an investment associated with it. Part of the premiums you pay for the cover will go towards the insurance and part will go towards an investment through which you can earn money.
Once you decide what type of life insurance you want, there are ways you can save money in the amount of premiums you have to pay. Term life insurance has the lowest premiums because the pay out is not guaranteed.
You will not be able to purchase this type of policy if you have any serious health problems, such as heart disease or cancer because this increases the likelihood that you will die during the term. You will have to undergo an examination by a physician to prove that you are in good health. If you do not smoke, you will also receive a lower premium.
If you decide that you need a second life insurance policy, you can save money by getting a rider on your existing policy. This is an addition to your policy that will expand your coverage without affecting the cash value of the plan. The older you are the more you will have to pay for life insurance cover. The best advice is to take out a policy when you are young.
A person in their mid-twenties will pay a lot less for the same amount of coverage as well a person in their mid-fifties. When you buy life insurance when you are young, you have the option of locking in a level premium, which means the premium won’t increase as you age.
Smoking and Life Insurance
Why wait to transform your finances as well as your health by quitting the fags? If the obvious health benefits haven’t convinced you yet, maybe the financial benefits will! If you give up smoking - for example at New Year, or on National No Smoking Day on 8th March or any other time- you’ll not only save thousands on not buying cigarettes but in 12 months’ time you’ll benefit from cheaper life insurance too.
Life insurers classify you as a smoker if you have used ANY tobacco products in the 12 months prior to applying for life insurance. For well-documented health reasons, smoking raises the chance of you eventually making a claim on your life insurance. Insurers weigh up the likelihood of an applicant making a claim and price the cover accordingly.
The Facts
A 35-year-old man in good health will pay £8.85 per month for £100,000 of cover over 20 years if he is a non-smoker. This rises by a staggering 78% to £15.75 if he is classed as a smoker – costing him £1,656 extra over the term of his policy.*
It does not get much better for a woman in the same circumstances; her cover would rise 72% from £7.25 to £12.45 per month.*
Honesty is the only policy - If you do smoke it is not worth trying to cover up the fact in order to pay less. If your smoking comes to light when the insurer is assessing a claim, they can easily refuse to pay out.
You may even be asked, as part of the application process, to take a saliva test to confirm that you are a non-smoker. If you have lied, your application may be declined and other insurers could then refuse to cover you.
Paying the right price - It’s simple: if you want life insurance and you are a smoker it’s going to cost more.
If the potential savings have tempted you to give up, or you are giving up anyway, then look to change your policy 12 months after using your last tobacco product, knowing that the insurer will newly classify you as a non-smoker.
If you have survived 12 months without a cigarette, don’t forget to tell your insurance company. Shop around on-line to find the best deals when renewing your policy - it is likely that the best premium will be from a different life insurance provider to the one you currently use.
- Health
You’ll feel and look better and fitter and may live longer - Cash
You’ll save hundreds on your life insurance as well as the fag packets - Warmth
Legislation will ban smoking in the workplace and all pubs, clubs and restaurants in England by 2007 so if you want to smoke you will be out in the cold. Some already have a total ban in place.
Is Suicide Covered on Life Insurance?
The unfortunate and depressing issue of suicide has become a staggering piece of harsh reality in today’s world. The US rank 46th in the world with 11,000 self-inflicted deaths per year. Here in the UK we are at 7000 position.
This has become a serious issue for many countries whether the factors be family issues, health issues, money problems, or relationship failures.
We’ve all seen this scenario before, either in a movie or on the evening news. A spouse, distraught over his or her family’s crushing financial burden, decides to commit suicide so that the surviving family members can collect his or her life insurance benefits. For Jimmy Stewart in It’s a Wonderful Life, his intended act of suicide was halted through the intervention of a guardian angel and everyone lived happily ever after. Unfortunately, this is not the way the story ends for families living in the real world.
What really happens to a family in the aftermath of a suicide attempt can be many times more devastating than the original circumstances that led to the attempt. If the attempt is successful, then the survivors may be left with a double tragedy. Not only have they lost a loved one, but what if the relevant life insurance policy will not pay benefits in the event of a suicide? Now the surviving family members are looking at even more debt because of funeral and burial costs and the deceased’s lost income.
If the suicide attempt is unsuccessful and there is no lasting injury, then the disturbed individual and his or her family are very lucky. There is no loss of a loved one and psychological counselling can be sought. Most health insurance policies will even pay for the treatment. If, on the other hand, a suicide attempt leaves the individual physically incapacitated permanently or for an extended period of time, this could spell even greater financial disaster for the affected family members. If the individual is also the primary wage earner, then the family has lost its major source of income (along with any attendant benefits) and must pay for physical care that may not be covered by any insurance policies.
The information that follows gives a brief overview of different insurance policies and what they will or will not cover in the case of a suicide or suicide attempt.
Suicide Coverage
The desperate soul who rushes out to buy an insurance policy and then immediately commits suicide is misguided in two respects: first, he or she should have sought help from a mental health professional for assistance in dealing with such self-destructive thoughts; and, second, the life insurance policy won’t pay if the suicide is committed immediately after its purchase.
Most life insurance policies have a suicide clause. Either death resulting from suicide is not covered at all or a death resulting from suicide is covered only after two years have passed since the date of the policy’s purchase. Why the two-year period? It’s thought that a clause that excludes suicide as a valid cause of death in the first two years of the policy’s life will stop someone contemplating suicide from buying the policy on impulse. There’s no immediate benefit, so they won’t buy the policy. Even if a person intent on committing suicide does buy a policy, the chances that they will still want to end their life after waiting two years is slim. There are life insurance policies that do not exclude suicide at all, but most of these plans are prohibitively expensive.
Coverage for Suicide Attempts
The most relevant type of life insurance coverage for someone who has survived a suicide attempt is health insurance. Obviously, someone who attempts suicide is in need of psychological help and many health insurance plans will pay for this. Some families might be hesitant to use this benefit because of the stigma attached to suicide and may be concerned that word of the family member’s mental health problems will become the subject of workplace gossip. Fortunately, those who handle and view insurance claims in an office are bound to strict rules of confidentiality and are prohibited from discussing any worker’s medical or psychological condition. The family can seek treatment and know that word of their situation will not be spread.
If someone survives a suicide attempt but sustains injuries that are permanent or that require long-term care, the situation can be pretty grim. Most health insurance companies will not cover injuries that are self-inflicted. So, things like hospital bills, rehabilitation costs, doctor’s bills, home care attendants and all other potential medical necessities would have to be paid for by the individual who attempted suicide.
How does Life Insurance work?
Life insurance actuaries look an individuals age, sex, health and habits and decide when someone with that profile is most likely to die. They then consider how much cover the buyer wants to purchase and set the premiums accordingly.
For example, smokers are (on average) likely to die sooner than non-smokers. Insurance companies know this means they will probably have to pay out a little sooner whenever they insure a smoker, and therefore charge people who smoke a higher premium to reflect this. This principle forms the basis of all life insurance.
There are two main types of plan to choose from:
- Term Life Insurance
This is the cheapest option, and pays out only if the holder dies while the policy's fixed-length term is in force. If the holder survives until the end of the term, they get nothing back. People often time their insurance to run only until a big family commitment ‚ such as the children's education, had been cleared.
- Whole of Life Insurance
As the name suggests, these policies remain in force right through the buyers life. It follows that the insurance company will have to pay out in almost every case, and premiums are therefore higher than those charged on term life insurance plans. Some policies demand that premiums be paid all the way up to the holders death. Others become paid-up at a certain age, and waive premiums from that point onwards.
What Does The Cover Provide?
There are a number of different types of Term and Whole of Life Insurance plans on the market. The cover which is provided will depend on the type of plan taken out. The types of plans available are as follows:
Term Life Insurance
- Level Term
The plans potential pay out remains the same for the full term of the policy. - Decreasing Term
The level of cover gradually reduces over the policy term to match a reducing liability such as the amount left to repay on a mortgage loan. - Increasing Term
Cover offered and premiums paid gradually increase in line with inflation. Designed to ensure the amount of cover purchased remains realistic and is not eroded by the effects of inflation over time. - Renewable Term
Allows plan holders to extend their cover for a further term with no health check. - Convertible Term
Allows holders to swap their term cover for a whole of life or endowment policy with no health check. - Family Income Benefit
Pays the surviving family a regular income instead of a lump sum for the remaining term of the policy.
Whole of Life Insurance
The majority of whole of life insurance policies are unit linked which means that premiums are invested into a fund and the cost of the protection is deducted from the fund as it grows. When a plan is taken out there is a choice of 'Maximum' or 'Standard' basis.
Maximum basis gives a very high level of cover for the monthly premium. Whilst this level of cover will be guaranteed for 10 years it is very likely that there will have to be an increase in premiums after each of the regular reviews. These usually take place after 10 years then after every 5 years.
Standard basis gives a lower level of cover for the premium, but is more likely that this level of cover and premium will stay the same throughout the policyholders life.
Tips for Life Insurance
What should you do when shopping for life insurance? Here are our tips:
Shop Around
Don't head straight for the nearest high street bank or direct provider just because they are familiar. Most banks and high street providers are tied to one insurer and won't be able to offer potentially cheaper and better quality cover from other providers.
Use an independent insurance specialist who can compare policies and premiums. Some offer discounted premiums and free advice to help you choose the right policy and provider for your circumstances.
Comparison websites online are an excellent option as they do the hard work for you and search for the best quotes. Visit Post Office® for life insurance quotes and to buy a simple, cost effective life insurance policy, offering you a way to pay off your mortgage or leave your family a cash sum when you die.
Know What You Need
There are many different types of life insurance and policy options that are designed for various needs. To ensure you aren't disadvantaged or paying too much for cover you don't need, either research the options or take independent advice.
Work Out How Much You Need
Generally speaking, your life insurance should provide a lump sum big enough to pay off your mortgage and other debts, or to invest to provide an income to support your dependants for a sufficient time such as six months or a year.
Guaranteed Premiums
Are the premiums Guaranteed? This means the premiums are guaranteed to remain the same throughout the term of your policy. This is opposed to `Reviewable´ premiums which, as the name suggests, are reviewed usually every 5 years and can increase at the discretion of the insurance company.
Declare All Material Facts
When applying, be sure to answer all questions fully and honestly. Declare everything that you are aware of and if in doubt, declare it anyway. Failure to declare even a minor issue can result in a claim being declined. Do not give the insurance company any excuse to refuse your claim.
Write Your Policy in Trust
Even an average life insurance pay out can easily take the value of your estate on your death over the inheritance tax allowance. Anything over this threshold is liable for 40% tax when this can easily be avoided by putting the policy in trust. Its free and simply requires completion of a trust form available from the insurance company. Once in trust, the policy remains outside your estate so won't increase its value on your death.
If Unsure Take Advice
Life insurance can be as simple as insuring your car if you know what you need and your affairs are simple. However, if you're affairs are a little more complex you should take independent advice.
How Much Life Insurance?
There is no right or wrong amount of life insurance as any cover is better than none at all, but generally speaking you should insure to provide a lump sum big enough to remove the burden of any debts and, ideally, have enough left over to invest to provide an income to support your dependants for a time.
The first consideration is to clarify what you want the life insurance to protect. If you simply want to cover your mortgage then an amount equal to the outstanding mortgage debt can achieve that. However, if you want to prevent your family from being financially disadvantaged by your death and provide enough cash to support their current lifestyle, then there are a few more variables you should consider.
- What are your family expenses and how would they change if you died?
- How much would outgoings increase on things like childcare if you were to die?
- How much would the family income drop if you were to die?
- How much cover do you get from your employer or company pension scheme and for how long?
- What insurance policies do you have already and how far do they go to meeting your needs?
- How far will your savings go?
- What state benefits are there that could give extra support to meet your family´s needs?
- How would inflation affect the amount of your cover over time?
However, if you are in doubt what is right for your needs, consult an independent financial adviser who can give you specific advice.
Term Life Insurance vs Whole Life Insurance
Whether you’re simply considering purchasing a life insurance policy, or have already made the decision to purchase a life insurance policy, it’s important to know the difference between a term life insurance policy and a whole life insurance policy. Knowing these differences will help you choose the best life insurance policy for you.
The most recognizable difference between term life insurance policies and whole life insurance policies is the fact that a term life insurance policy will cover you for a certain number of years, whereas a whole life insurance policy will cover you for your entire life. If you’re only looking for life insurance coverage for a specific amount of time, a term life insurance is probably your best bet. However, if you wish to be insured for the rest of your life, you should purchase a whole life insurance policy.
Another difference between term life insurance policies and whole life insurance policies is that whole life insurance policies offer a tax-deferred accumulated cash value. This acts as an investment component. Some people are interested in the ability to invest using their life insurance policies, so they choose to purchase a whole life insurance policy. However, if you use other methods of investment, a term life insurance policy is probably the best for you.
A third difference between term life insurance policies and whole life insurance policies is the difference in price. Term life insurance policies are generally cheaper than whole life insurance policies; however, whole life insurance policies often offer fixed annual premiums, so you won’t have to worry about your rates increasing if your health begins to deteriorate. Most term life insurance companies will raise your premiums based on the current condition of your health, as well as your age.
So, when you begin your search for the perfect life insurance policy, take these differences into consideration and decide which type of policy is best for you.
Universal Life Insurance
Buying life insurance is by no means an easy task. There are several policies to choose from, each with elements that we want and need. The two most popular kinds of life insurance policies are term life insurance policies and whole life insurance policies.
If a term life insurance policy and a whole life insurance policy got married and had a child, the child would be a universal life insurance policy. Universal life insurance policies are a mix of term life insurance policies and whole life insurance policies. Just like all children do, universal life insurance policies have a few positive features and a few negative features of each parent, i.e., the term life insurance policy and the whole life insurance policy.
Like a whole life insurance policy, a universal life insurance policy offers an investment component; however, universal life insurance policies are generally less expensive than whole life insurance policies. This is a good thing for those of us who want the cash value accruement of a whole life policy but can not afford to purchase one. It should be noted, however, that earning a cash value isn’t guaranteed. Coverage can even end if your account gets low enough.
Like a term life insurance policy, a universal life insurance policy is usually not as expensive as a whole life insurance policy. However, even though an accumulation of cash value isn’t guaranteed with a universal life insurance policy, it is possible; it is not possible with a term life insurance policy.
If certain aspects of both a term life insurance policy and a whole life insurance policy appeal to you, consider purchasing a universal life insurance policy. Don’t purchase any life insurance policy, including a universal life insurance policy, without first speaking with an agent of the life insurance company. Your universal life insurance agent will be able to construct the life insurance policy that meets both your wants and needs.