Thanks to the latest budget changes, you can now buy life insurance and get tax relief. But the tax relief is only available on a new special type of life policy. You can’t get tax relief on your existing life insurance.

These new life policies exploit provisions in the new Finance Bill and should result in savings of between 5% and 15% for a standard tax payer and around 30% for a higher tax payer.

But you must be aware that there are strings attached! You have to buy an absolutely standard life policy. You can’t add extras such as critical illness cover and the insured sum must be a fixed sum. And only one life can be insured on each policy - it has to be a bog standard, level term, single beneficiary, life insurance policy.

The Chancellor has added more restrictions, but quite frankly, these are unlikely to pose a problem to anyone unless they’re extremely wealthy!

You can’t have one of these new style life policies if your annual life insurance premiums plus the annual contributions you make to your pension fund exceeds £215,000. Furthermore, if the when you die, the value of your pension fund plus the payout from your life policy exceeds £1,500,000, the current lifetime limit set by the Chancellor, then any excess will be taxed at 55%. Payouts from conventional life insurance policies are not part of this calculation.

Standard tax relief on the premiums is automatically collected by the life insurance company so you pay a lower premium which already reflects standard rate tax relief. If you are a higher rate taxpayer, you’ll have to claim an extra tax rebate through your self-assessment tax return. However, once you’ve told your taxman about your policy, you should automatically get your tax relief through your ongoing tax code.

So why are the savings at around 5% to 15% for a standard tax payer and around 30% for a higher tax payer, less than the value of the tax relief? Well, the life companies have to administer the tax relief and there are certain operational restrictions imposed on the insurance companies by the Inland Revenue - and this adds to the insurance costs - so the premiums are a little higher than conventional life policies. But after the tax relief you should make worthwhile savings.

As with all these tax changes, you must be aware that the Chancellor could remove the tax relief at a later date. Having said that, it’s rare for a tax change to be applied retrospectively, so you are likely to be safe. Your income could also drop and move you into a lower tax bracket. This would decrease your savings.

These new life insurance policies are now available from most of the big UK life insurers and life insurance brokers. However, you won’t be able to get a quotation online – you’ll have to get one on the phone from a Life Insurance Adviser.

And just to confuse matters somewhat, these policies are known under a range of names: Pension Term Insurance, Life Insurance with Tax Relief, Life Protection with Tax Relief – but they all mean exactly the same thing.

And just to confirm one common miss-understanding, no, you don’t have to buy a pension at the same time!

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If you run a small business you know that if a member of your team was taken seriously ill or died, your business would be hard hit. Sales or production could fall, key skills could be lost and the general pace of the business could fall.

Insurance is available to offset those financial risks, risks that are potentially most serious in a small business. After all in smaller businesses other employees can’t be moved across to fill the gap - there’s simply noone spare so the problem remains until the person either returns to work or has to be replaced.

If the person is off sick with a serious illness such as cancer or a heart attack you simply don’t know when, or if, they’ll return to work and management is caught in a cleft stick. Do they take on a temporary employee or a permanent employee, or are you forced to simply wait until matters resolve themselves? And how much will all this cost the business in terms of both extra costs and lost sales and profit?

Traditionally, it’s Keyman Insurance that’s covers these very real risks but nine out of ten small businesses still don’t carry this insurance. It’s either because they haven’t thought about it or they’ve found it to be too costly.

A spokesperson for the Federation of Small Businesses said, “In an ideal world, small firms would be insured against everything, but reality demands the businesses prioritise threats and occasionally take risks”.

But there is a cheaper potential solution. It’s called Group Critical Illness Insurance and it’s about half the price of standard Keyman Insurance.

With Group Critical Illness Insurance, the company decides which employees to insure and how much to insure them for, pays the premiums and receives all lump sum payouts. Claims can be made as soon as any of the insured people are diagnosed with a scheduled critical illness and the policy will list a long list of chronic illnesses that are covered. As you would expect heart attacks, strokes and cancer are the biggest three biggest reasons for claims but the full list is much longer. For example, kidney failure, meningitis, CJ Disease and even blindness.

The important point to realise is that for the company to make a claim, the insured employee must survive at least 28 days after they are diagnosed with the critical illness. (Some insurance companies have now reduced this to 14 days so please check before you buy.) So if the employee died before the end of the survival period, the claim would be invalid. In that context, it is not as comprehensive as full Keyman Insurance – but at around half the price of Keyman Insurance there has to be a little compromise!

Simon Burgess, the Managing Director of British Insurance says: “Group Critical Illness Insurance is a real alternative to full Keyman Insurance and at around half the cost, it’s great value for money. If business managers find Keyman Insurance too expensive there’s little excuse for not filling most of the gap with Group Critical Illness Insurance. Don’t pay the price for apathy”.

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On 4th April we alerted our readers to the apparent implications of the changes announced by the Chancellor in his latest budget.

By Thursday last week the estimates of the numbers of people that could be hit by the new anti-trust provisions in the recent budget hit 4.5 million. Then the following day the draft legislation for the Finance Bill was published - and the estimates fell to 1 million people.

So, with specific reference to life insurance policies written in trust, what’s happening?

Well first of all, we have to make the point that we are talking about the draft Finance Bill and it’s three months before that legislation will become law. It still has to pass through parliament and it’s possible that the situation could change. If it does we will keep you informed.

On Friday the Government retreated from its previous position that existing life policies written in trust will be caught by the new legislation. The position now is that if your life insurance policy was written in trust before budget day 2006, then the money in the trust remains totally free of tax and fees. That’s one headache out of the way.

However, if your policy was written in trust after the 2006 budget day, then the new rules do apply.

Gordon Brown’s latest budget has changed the tax rules on life insurance policies written in trust. Regular readers of our Blog will know that we have consistently reminded people taking out life insurance, that they should have their policy written in trust in order to avoid future Inheritance Tax (IHT).

The new rules introduced at the recent budget mean that even if your policy is written in trust and there is a claim on your policy, your estate will have to pay a tax charge of up to 6% on the value of the payout that comes above the IHT threshold of £285,00. This new rule applies from 5th April 2006.

Whilst this new tax is not to be welcomed, the new tax is only 6% which is still better than the 40% your estate would have to pay if your life insurance policy had not been written in trust. So, we believe that it is still worthwhile writing your life insurance policy in trust.
Having said that, there is now a danger that the tax charge of up to 6% could mean that there is insufficient IHT free cash generated by your policy to achieve your financial objective. If this is the case, don’t take any action just yet.

The Association of British Insurers (ABI) is meeting the Treasury this week to discuss the situation thrown up on life insurance policies by these tax changes. The insurance industry believes that the Government brought in the package of anti IHT avoidance measures, which included life insurance policies written in trust, without fully appreciating the impact on the man and woman in the street. Some commentators believe that the Government will back track and take life policies out of these anti trust measures. We’ll see!

Even if the new tax measures are not rescinded, existing life insurance policy holders should be aware of the transitional arrangements which will reduce their estate’s tax bill. The Treasury is saying that only the part of the policy that was in force after budget day will be caught in the IHT net. This means that if you have a 15 year policy for £100,000 and it has already been in force for 5 years, then only 66.6% of any payout would be subject to the new 6% tax – so in this example, your estate would have to pay tax of £3,999.96 if your estate, excluding the insurance payout, fully exceeded the IHT £285,000 threshold.

We will provide our readers with an update as soon as we hear the outcome of the ABI’s meeting with the Treasury this week.

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Gordon Brown’s latest budget has changed the tax rules on life insurance policies written in trust. Regular readers of our Blog will know that we have consistently reminded people taking out life insurance, that they should have their policy written in trust in order to avoid future Inheritance Tax (IHT).

The new rules introduced at the recent budget mean that even if your policy is written in trust and there is a claim on your policy, your estate will have to pay a tax charge of up to 6% on the value of the payout that comes above the IHT threshold of £285,00. This new rule applies from 5th April 2006.

Whilst this new tax is not to be welcomed, the new tax is only 6% which is still better than the 40% your estate would have to pay if your life insurance policy had not been written in trust. So, we believe that it is still worthwhile writing your life insurance policy in trust.

Having said that, there is now a danger that the tax charge of up to 6% could mean that there is insufficient IHT free cash generated by your policy to achieve your financial objective. If this is the case, don’t take any action just yet.

The Association of British Insurers (ABI) is meeting the Treasury this week to discuss the situation thrown up on life insurance policies by these tax changes. The insurance industry believes that the Government brought in the package of anti IHT avoidance measures, which included life insurance policies written in trust, without fully appreciating the impact on the man and woman in the street. Some commentators believe that the Government will back track and take life policies out of these anti trust measures. We’ll see!

Even if the new tax measures are not rescinded, existing life insurance policy holders should be aware of the transitional arrangements which will reduce their estate’s tax bill. The Treasury is saying that only the part of the policy that was in force after budget day will be caught in the IHT net. This means that if you have a 15 year policy for £100,000 and it has already been in force for 5 years, then only 66.6% of any payout would be subject to the new 6% tax – so in this example, your estate would have to pay tax of £3,999.96 if your estate, excluding the insurance payout, fully exceeded the IHT £285,000 threshold.

We will provide our readers with an update as soon as we hear the outcome of the ABI’s meeting with the Treasury this week.

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If you make a claim on a critical illness insurance policy your insurer will routinely make exhaustive enquiries about the history of your health. Whilst you’ll have provided them with lots of similar information when you first applied for the insurance, they’ll now insist that all the information is rechecked. And if you said you were not a smoker, they will also want this verified by your doctor.

The reason is clear. The insurer is faced with a big claim, typically well over £100,00, and they want to know that you told the full truth about your health when you applied. This means that now you’ve claimed, they’ll crawl through your medical records in great detail checking that you told them everything when you applied. Even the smallest and apparently insignificant detail will be subject to intense scrutiny. And this can be upsetting for you.

The insurers defend this process saying that they need to be sure that back when they accepted the business, the applicant told the full truth. They want to be sure that the applicant didn’t cheat by omitting some detail in order to dupe the insurer into issuing a policy when they otherwise wouldn’t have, or to qualify for a lower premium. Either way, omitting information would be cheating and grounds for refusing the claim.

The insurers are particularly suspicious if the claim arrives during the policy’s first five years. Any claim arising in this period is classified as an “early claim” and they’re particularly on the look out for any policyholders who took out the critical illness cover already suspecting that that they may be ill.

The problem is that this intense scrutiny attracts a very bad press. If you’ve just made a claim, you’re inevitably very sick and the last thing you want is lots of questions and high handed hassle from your insurer. There’s clearly a conflict here and the insurers need to work much harder at softening the presentation of the enquiry process and they must liase much more closely with their claimants. They must present a much softer centre.

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At last, really cheap life insurance – but there are strings attached. Aren’t there always!

As from 6th April 2006, if you pay into a pension and at the same time pay for life insurance cover, then you can use your pension contribution allowance to reduce the cost of your life insurance. This is achieved by receiving 22% tax relief on your life insurance premiums if you’re a standard rate tax-payer, and relief at 40% if you’re a higher rate tax payer.

The combined pension and life insurance premium you pay, will automatically be reduced by 22% by the pension provider but if you’re a higher rate taxpayer, you’ll have to claim the balance to bring the relief up to 40%, on your end of year self-assessment return.

But there are three conditions:
• The company providing your pension must also provide your life insurance and be paid as a combined premium.
• Your pension fund plus the insured value of your life insurance, must not exceed £1.5 million.
• Your annual pension and life insurance premiums must not exceed £215,000.

In practice the life insurance savings will not be quite as big as you might otherwise expect. This is because the underlying cost of the life insurance will be a bit more expensive than a stand-a-lone policy with the same company and the odds are that the company providing your pension will not be the cheapest on the life insurance market. Furthermore, you will not be able to buy a combined pension/ life insurance policy online - so you’ll will miss out on the Internet’s discounted prices.

Having said all of that, if you’re a higher rate tax payer your tax savings are bound to ensure that your life cover is a real bargain! If you are a standard rate taxpayer, before you buy, we think you’d be wise to get an online quote to compare against the price for the pension associated life insurance.

There are also some other points you probably need to know. Firstly before you ask, no you can’t convert your existing life insurance policy into a combined pension purchase. The tax relief is only available when you take a pension policy and life insurance as one combined purchase.

Secondly, you can only take out life cover for yourself. Joint policies aren’t available as a pension/life insurance package.

And you can’t add critical illness cover to your life cover. Critical illness cover pays out a lump sum if you are diagnosed with a specified illness listed on your policy. If you also want critical illness cover, it’ll have to be a normal stand-a-lone policy.

Finally, if you’re tempted to buy a pension life insurance package and cancel your existing life cover, a few words of warning. The fact that you will now be older than when you first took out your existing life insurance policy, means that your premium rate will be higher. Furthermore, the premium for your new policy may be loaded due to any medical conditions you’ve developed since taking out your original policy. Even if you’ve simply put on weight, you could find that your premium is loaded. In extreme medical cases, your proposed pension provider might even refuse to provide you with life cover. All this means that you must obtain written acceptance from your pension company and compare the after tax cost, before you cancel your existing life insurance policy.

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Women whose family line has a history of ovarian or breast cancer could face higher insurance premiums or be refused cover altogether under proposals from the Association of British Insurers (ABI).

The insurance industry wants the right to ask these women when they apply for life and critical illness policies whether they have been tested for the gene mutations that increase the likelihood of them developing the cancers. But before the insurers can include these questions on their application forms, they must receive approval from the Genetics and Insurance Committee, the organisation that advises the Government on this sort of issue.

The ABI will soon be requesting this Committee for permission to include the controversial questions which ask women whether they have been tested positive for BRCA1 or BRCA2 gene mutations. It’s these genes that are present in 1 in 10 new cases of ovarian cancer and 1 in 20 new cases of breast cancer diagnosed. Women who have damaged BRCA genes have a 14 – 18% chance of developing breast cancer sometime in their lives and approximately 1 in 850 women in Britain inherit a faulty BRCA1 gene.

A note posted on the web site for the Genetics and Insurance Committee said, ” The Committee expects that the Association of British Insurers will submit in late 2006/2007 four revised and updated applications for the use of adverse results from the predictive genetic tests of the BRCA1 and BRCA2 genes (breast/ovarian cancer) in helping to determine insurance premiums for life and critical illness insurance”.

To date, in the UK insurance application forms are only allowed to ask for the results of predictive tests for Huntington’s disease and then only when the application is for cover exceeding £500,000 for life insurance or over £300,000 for critical illness insurance or over £30,000 for payment protection insurance. This policy is set by an agreement entered into by the ABI which is due to expire in 2011 but Harpal Karlcut, Chairman of the ABI’s Genetics Working Party, is reported in the insurance magazine “Cover”, as saying that the Association would like changes.

“We are looking to get approval for the breast cancer test by the end of the year. The two breast cancers are the next conditions that we will look at but after that we don’t see the need to look at other conditions”. He then went on to add a rider saying, “We do keep an eye out for what diseases may come up in the future but there is nothing else on the horizon”. We add another rider – yet!

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Technocrati Tags[life] [insurance] [critical]

No we’re not insensitive – we’re talking about your last gasp of smoke – have you given up smoking?

Smokers pay up to 60% more for their life insurance cover compared to non-smokers. So, besides the health dividend, life insurance companies will chip in with lower premiums. And the saving isn’t to be sneezed at! It could typically amount to £10 or more per month.

Most insurance companies say you’re entitled to non-smoker premium rates if you’ve not smoked or otherwise used nicotine products, within the last five years. If you’ve only just given up smoking you’ll have to wait for the extra spending money.

But sometimes there’s a way of speeding things up. Some insurers have adopted a more relaxed definition of a non-smoker by shortening the 5 year abstinence period to just twelve months. So if you’ve been fag free for a year, find out whether you can move your life cover to one of these insurers. But you have to be careful. Never cancel your existing policy until you’ve received written acceptance from your new insurer.

How do you swap insurers?

First of all, to get the best price, you need to go on the Internet and find a life insurance broker that provides help, discounts price and searches the whole insurance market for the lowest prices. If you use a web site that provides an on-screen quote, you won’t know whether that insurance company that comes up uses the 5 year or the 12 month smoker definition. Online systems never tell you. To be sure you need to chat on the phone to a life insurance adviser.

Then ask for a quote. If the quoted price looks cheaper than you’re currently paying as a smoker, put in a full application. One of the main aspects that conditions your premium is of course, you age. Therefore, if your original policy was put in place many years ago, the savings could be quite a bit less than the 60% we have indicated. You’ll just have to get a quotation and find out! As all brokers are only too pleased to provide quotations, and these are always free and without obligation, what have you to lose?

Having found an attractive quotation from an insurer with a 12-month smoker definition, you’ll have to complete a full application. Read every question carefully and answer all the questions fully and honestly. Far too many applicants try to ensure a low premium by being “economical with the truth” on questions that might otherwise not read too well for them! Don’t be tempted.

Over the last few years insurance companies have also become far more picky about whom they allow to have standard terms – that’s the first price they quoted you. Their selection rules about weight and health have become far tougher resulting in lots more clients having their premium loaded. That’s why you mustn’t cancel your existing policy until you have got a final acceptance at a price that gives to that saving you’re looking for.

Whilst the switching process may sound a little daunting, it isn’t really. In any case if you end up with big savings, it’ll provide an extra reward for the stress of giving up.

Good luck.

Life and Critical Illness Insurance. Fully disclose your medical history when you apply.

You have been warned!

To help underline some issues, we want to tell you a true story - but we’ve hidden the policyholders’ name to preserve anonymity.

Mr P was fighting a secondary infection following surgery to remove cancerous lymph nodes when he received further bad news. The insurer for his critical insurance policy, which he took out two years earlier, was refusing to pay out the £180,000 he was expecting. To understand why and the issues involved you need to understand how events unfolded.

· In July 2001, Mr P visited his Doctor after discovering a patch of flaky skin on his back. Mr P thought it was eczema. During a brief consultation, his Doctor thought that it should be looked at by a dermatologist and recommended a referral. But soon afterwards the flaky skin healed and Mr P cancelled the appointment. Apparently the Doctor did not express any major concern and some years later admitted that Mr P was probably unaware of the urgency of the referral.

· Eight weeks later a representative from Standard Life made a routine visit to Mr P at his home. As Mr P had a young family, the representative reviewed Mr P’s insurance cover and suggested that he should also have £180,000 of Critical Illness Insurance. Mr P thought it sounded a good idea and agreed. So, he agreed to make an application there and then.

The representative brought out the form and went through it, writing down Mr P’s answers for him. When it came to the question asking Mr P to divulge all occasions his Doctor had recommended referrals for tests or treatments, Mr P asked the representative what Standard was looking for. Mr P alleges that the representative replied that Standard wanted appointments that related to serious conditions. Mr P did not believe that his referral for what he thought at the time was eczema, fell into that category - so he did not mention it. He then signed the form genuinely believing that he had done what Standard Life required.

Standard subsequently accepted his application and issued a Critical Illness Insurance policy.

· Two years later Mr P was diagnosed with skin cancer. Major surgery quickly followed to remove cancer from his groin. As his policy covered cancerous lymph nodes, Mr P then made what he thought was a valid claim.

· Standard subsequently rejected his claim on the basis of “reckless non-disclosure” – the insurers’ jargon for Mr P’s failure to disclose his referral to the dermatologist.

The Issues

It is quite clear that Mr P’s application should have included his referral to the dermatologist. So why didn’t he provide the information?

It seems that two aspects combined to create a situation: Standard Life’s representative interpreted the question on the application form to divulge “all occasions his Doctor had recommended referrals for tests or treatments” as only relating to serious conditions. That interpretation was wrong. The question asked for ALL OCCASIONS. ALL means ALL and is not asking the applicant make a judgement as to what is serious and what is not. The Representative was wrong.

Secondly, the Doctor clearly did not communicate the potential seriousness of Mr P’s referral to the dermatologist. If at the time the application was completed, Mr P did not know it was serious and the representative said the referral question related only to serious conditions, Mr P can hardly be blamed for not disclosing the information.

In our view, on the basis of the information provided to us, Mr P is blameless. The central error lies at the feet of Standard Life’s representative. He gave incorrect guidance on what the central question was asking for. Standard Life should pay out.

The vital lesson to be learnt

Always carefully read each question on an insurance application form - and answer the question ACCURATELY and FULLY. If you don’t, the insurance company can rightfully claim that you mislead them by omission. Don’t be tempted into thinking that by omitting some information, your premiums will be lower – well yes they might, but that’s false economy if it later results in your claim being rejected.

We hope Mr P will get his payout as circumstances beyond his control clearly mislead him. He acted honestly. He deserves his payout and our best wishes.

However, those applicants who deliberately withhold information from their insurer do not.

Postscript: Standard Life has reported that they refuse 5% of all Critical Illness claims due to non-disclosure. Legal & General is much tougher - they say they reject 16%.

When you take out a mortgage you’re making a long-term commitment to make the monthly repayments for the duration of the mortgage. That will be over many years but you’re making that commitment without knowing what’s going to happen during that time. That’s a big risk. Mortgage Payment Protection Insurance is one of a range of insurances that includes life insurance and critical illness insurance, which you can take out to reduce that risk.

The purpose of Mortgage Payment Protection Insurance (MPPI) is to ensure that your mortgage repayments will continue to be paid if you’re off work for an extended period due to accident, sickness or unemployment.

If you have a normal repayment mortgage, the value of monthly MPPI cover needed equals the value of your monthly repayment. However, if you have an interest only mortgage, then the cover value needs to include the monthly the mortgage interest repayment plus the monthly cost of the savings vehicle you’re using to repay the mortgage at the end of its term. Remember that if your mortgage repayments were to rise due to an increase in interest rates, then you’ll need to increase the level of cover. Oh yes, the good bit – if you have a claim then the income payout is tax-free!

The best bit of advice we can give is always buy an MPPI policy where the premium can be cancelled without penalty at any time. Never, accept a policy where the future cost of premiums is added to the mortgage or loan in any way – those types of policy tend to work out very expensive.

As with most forms of insurance, you’re likely to find it cheapest on the internet. Indeed, this site has teamed up with British Insurance to offer you a superb MPPI deal. Click here for more details.

Technocrati Tags[mortgage] [insurance]

Life insurance companies are forcing fat people to pay dearly for over-eating. Premiums for fat people are regularly up to four times higher than the standard premium.

But over the last year it’s got even worse. In moves to tighten the belts further, the life insurance companies are lowering their weight limits when categorising people. This means that those who are merely overweight and would previously qualified for a normal premium, now are penalised with higher premiums – and the premiums rise rapidly the more overweight you are.

Weight and height are two of the questions you complete when you apply for life insurance. From the answers, the life company will calculate your Body Mass Index and if that exceeds the limits they define as normal, they will often ask for a report from you doctor and sometimes ask you to have a medical examination. If this confirms that your weight is over their norm, then you can expect your premium to be loaded by at least 50% and rising up to 400% if you’re obese. Recent figures show that around a quarter of applicants will experience problems getting life insurance due to their weight. In extreme cases they’ll even refuse to provide cover.

When deciding whether to load you the insurers also take your age into account. If you’re young and overweight, they’ll hit you hardest. They accept that people naturally tend to put weight on as you age. So overweight and 35 will be hit harder than overweight and 55.

A healthy, non smoking man aged 35 looking for £150,000 level cover over 25 years would be quoted £18.77 by Scottish Provident but this could jump to around £35 if he is overweight and £47 if he is obese.

And obesity is a growing problem. In adults, obesity has rocketed over the last 20 years with more than 60% of men and 50% of women being judged as overweight or obese. And the signs are that the problem will not improve. In children aged between 2 and 15, 22% of boys and 28% of girls are overweight.

Check out how you rate on the Body Mass Index

· Take your weight in pounds and multiply it by 703.

· Divide that number by your height measured in inches

· Divide the resulting number again by your height in inches

· The result is your Body Mass Index. (BMI)

Typically, the insurance companies consider a BMI of between 18.5 and 24.9 to be normal. Above 25 classifies you as overweight and over 30 makes you obese.

Medical research indicates that people with a BMI of 35 and over face a marked reduction in their life expectancy. A 35 BMI is equivalent to a 15 stone woman 5 feet 5 inches tall and a 5 foot 10 inches tall man weighing 17 stone 6 pounds.

Technocrati Tags[life insurance] [insurance]

Critical illness insurance again came under fire in last weekend’s press. The basic problem is that a critical illness claim is not as clear cut as, say, life insurance or car insurance. With car insurance it’s clear whether or not you have an accident - the damage is there to be inspected and repaired and with life insurance the insurer can’t easily argue that you’re not dead!

With critical illness insurance, before it will pay out the insurer will want to satisfy itself that the claim is valid in three primary areas:

· Has the diagnosis been made correctly?
· Is the illness/condition included in the schedule of illnesses/conditions listed on the policy?
· Did the claimant correctly disclose their state of health and health history on their original application form?

It’s in everyone’s interests to ensure that the diagnosis has been made correctly - so there’s rarely any conflict between insurance company and policyholder on that matter. It’s the other two validation areas where conflict can arise.

Depending upon the wording on the policy’s schedule of insured illnesses there can sometimes be some illnesses which fall into a grey area – it can be argued that they are insured and it can be argued that they aren’t. Now it’s not an issue if the insurer believes an illness is covered but the policyholder doesn’t - the claim is never made and the issue never surfaces! But the sparks fly when the policyholder thinks he is insured but the insurer disagrees. Such a case comes before the Courts in the next few weeks. David Hawkins from Staffordshire is suing Scottish Provident under his £400,000 policy. Basically, the policyholder’s medical advisers believe his illness is covered by the terms of the policy whereas the insurer’s medical advisers disagree. If Mr Hawkins wins, the press will have a field day and the critical illness industry will suffer a further knock it can ill afford.

Another writ, filed in the High Court last month, points up the problems when an insurer thinks that the claimant mislead them on the original application form thereby obtaining insurance cover on false pretences. Thomas Welch form Kensal Green, north London, is suing Scottish Provident for £206,800. The issue goes back to 2000 when, two years after taking up the critical illness policy, it was confirmed that he had testicular cancer. Scottish Provident refused the claim because of “non-disclosure”, saying that Mr Welch had not been honest about his smoking habit. He admits that he did smoke earlier in his life but insists that he had long since quit by the time he applied for the insurance and as such, did complete the form honestly. We presume that the case in court will centre upon whether Mr Welch accurately answered the questions about smoking. Most insurers define “a smoker” as someone who has smoked or taken nicotine products within the last 5 years. If Mr Thomas had said “yes”, to this type of question, then his insurance premium would have been as much as 65% more than he would have been charged as a non-smoker. We guess that his lawyers may try to argue that he omitted information by simple error and that the past smoking was irrelevant to his testicular cancer. An interesting issue. We shall follow the case and report the outcome.

These first court cases illustrate the problems that can arise when policy documents imprecisely defines an illness or when the technical diagnosis of an illness leaves room for the medical experts to disagree. Both issues are entirely outside the policyholders control and we can well understand their anguish at a most difficult time for them. The long-term solution must lie in the way the insurance company defines and explains the scope of the cover being afforded under the policy.

In the other court case, Mr Welch’s position must stand as a clear reminder to everyone that insurance applications must always be 100% truthful and completed in good faith. We know that this will always leave some room for dispute (and Mr Welch’s case may be one of them), but if applicants fail accurately complete forms they are taking the risk of having a subsequent claim rejected.

The situation now is that the articles in the weekend’s press will, rightly or wrongly, reinforce the public’s impression that insurers cannot be trusted - especially with regard to critical illness insurance. It’s a fact that around 20-25% of critical illness claims are rejected but the rejection rate does vary a little between insurers.

This is a crying shame as 1 in 5 men and 1 in 6 women will be diagnosed with a critical illness before their normal retirement age and as such, this type of insurance can greatly help the finances of those unfortunate to be diagnosed (source Munich Re).

More than 50% of the UK population do not have any form of life insurance cover, says Swiss Re, one of the world’s largest insurance companies. In their latest annual report they estimate that an additional £2.4 trillion of insurance cover would be needed to bridge that gap.

But in practice the gap is not that big. Firstly, there’s the people who are ruled out from having life insurance due to their age - 1 in 6 people are aged over 65 and effectively uninsurable, and just over 1 in 5 are aged under 18, the minimum qualifying age for life insurance cover. Then there’s a raft of single people aged between 18 and 65, who have no dependents and for whom life insurance is quite unnecessary. Having said that, there’s no doubt that there are still many families out there who desperately need life insurance but who don’t have cover.

So what’s holding them back?

There are still lots of people who simply don’t understand what life insurance does and because it’s never top of their minds, nothing ever gets done. Then there’s apathy. Life insurance isn’t exactly a pleasurable buy, there’s no window-shopping or thrill in the purchase. So the probability is that unless a financial adviser sits down in front of these people and talks about life insurance, they’ll remain uninterested and uninsured.

Then there are the people who know they need life insurance but say they can’t afford it. But for many, “can’t afford” actually means “I choose not to afford”. They might be happy to spend £3,000 a year on a 30 a day smoking habit but won’t cut back to pay for a monthly premium that protects their family’s future.

There is no disputing the fact that some people have applied for life insurance and genuinely found the final premium offered, totally unaffordable. For the majority, life insurance at standard rates is fine but over the last seven years there has been a huge rise in the number of people who are paying loaded premiums. It’s due to the life insurance companies making it increasingly difficult for people to meet their definition of being “healthy”. Today, twice as many people as there were seven years ago, are being charged higher premiums because the insurance companies rate them as an above average health risk.

Even four years ago it was quite obvious who would have trouble getting insurance at standard rates – former cancer suffers, someone with a history of heart or circulatory problems and diabetics for example. The situation has now changed. The insurers’ application forms are now far more detailed and ailments that were previously acceptable under standard terms are now only accepted with loaded premiums. Take your weight – insurers are clamping down where they consider a person’s weight to be a threat to their longer-term health. In it’s not only the obviously obese that attract the insurer’s attention. The insurers are using a calculation called the Body Mass Index. This is calculated by dividing a persons weight by the square of their height. Insurers now want a BMI of 29 or less, whereas previously up to 40 was OK. This means that a woman weighing 83 kilos and 1.66 meter tall would now face higher premiums.

The application process too can put people off. Whilst around 30% of applicants will get a decision almost immediately, for everyone else the process can become one delay after another. As if a 14-page application form were not enough, some people are faced with additional forms to complete and medical examinations. Sometimes the whole process can stretch to 8 weeks, even more, before the applicant knows exactly how much the premium will be. If that works out more that the person can afford, the applicant is often too fed up of the whole process to start again with another insurance company. This leaves yet another family uninsured.

Despite these criticisms, the insurers claim that life insurance premiums are generally lower today that a few years ago, thanks to more sophisticated underwriting procedures and computerised risk assessment. Furthermore around 10% of life insurance is bought on the Internet where competition has forced discounting resulting in much lower premiums.

Nevertheless, in our view it will take many years to get the percentage of people covered by life insurance above the 50% mark.