Poor life cover is a sick joke

BRITONS are the sick men and women of Europe, according to a report on obesity which has set alarm bells ringing at life insurance companies and mortgage lenders.

The Health Profile report published last Wednesday revealed we are the fattest nation in Europe, with 23% of adults clinically obese.

Scotland on Sunday last year broke the news that insurers were clamping down on over-weight customers, by loading their premiums. Since then, they have begun penalising fatties further, either refusing to cover them completely or hiking premiums significantly.

Against this background, life insurance sales have collapsed at a time when consumer debt has soared. Mortgage lenders, life companies and cancer charities are becoming increasingly concerned that today's consumers are borrowing more and more, often secured against the family home, without protecting their nearest and dearest should disaster strike. They are warning that this could leave partners and children homeless and destitute.

During the first half of the year, homeowners borrowed £24bn against their homes, half as much again as during the same period last year, according to mortgage equity withdrawal data published by the Bank of England. This reflects loans advanced against property which were not used to either buy or improve a home, but spent on holidays, a new car or other luxuries.

Yet sales of mortgage-related life cover have fallen consistently for four years, after peaking at £400m in 2004 and sliding to £364m at the close of 2005, according to the Association of British Insurers.

ABI head of life and pensions, Chris Kenny, said: "For most people, a mortgage is the biggest single loan they will take out. Property may well be considered a long-term investment, but in the short term a mortgage is a large financial liability. It is very important that people ensure they and their families are protected in the event of something unexpected happening."

Aegon's head of protection development, Stephen Crosbie, added: "We know on average homebuyers are remortgaging every five years, and each time they move lender many increase the debt. But it seems apparent that many of these are not simultaneously increasing life cover."

Anna Wood, a policy manager for Breast Cancer Care, said the rise in single mothers meant that many with small children and no financial protection were distraught when diagnosed. She said: "It is all very difficult, because many of these women are very young, and have never thought about breast cancer for a moment. But if they are on their own and they are diagnosed, their first thought is their children, and what will happen to them, particularly if they can't leave them provided for financially."

Swiss Re's protection gap index confirms our chronic under-insurance. It monitors wider life insurance needs and says we are buying £2.3 trillion of life cover less than we need, up from £2 trillion four years ago.

Yet buying life cover has rarely been cheaper, if you are in good health, with protection costing about half the price of a decade ago. It is even cheaper if you exploit recent changes to the pension rules which allow you to buy life cover via a pension term policy, which is also tax-deductible.

However, it is becoming more difficult to get cover than ever, particularly once any health ailment is diagnosed. Whereas most of us (80%) would have qualified for "standard" premiums 10 years ago, the numbers facing a higher-risk loading has doubled to 40%.

Kevin Carr, technical manager for financial advisers Lifesearch, said that increasingly companies only want the best risks. He said: "In the past, customers would be loaded for conditions such as diabetes, but now some insurers will reject or load applicants who admit to minor ailments such as stress or depression.

"They are also tightening up on family history. They have always taken family history into consideration, and would have been concerned if several family members were struck down by the same condition. But now some won't touch anyone whose mother, say, had breast cancer, or diabetes."

Nevertheless, life cover remains cheap for the peace of mind it brings. Monthly premiums start at £8.64 for £100,000 cover for 25 years for a 35-year-old man with Asda, underwritten by Scottish Widows.

M&S Money, AA Insurance Services, Sainsbury's Bank, Tesco Personal Finance, Virgin Money, Legal & General, Norwich Union, Friends Provident and Egg all charge less than £10. Women the same age can pay up to £2 less monthly because they live longer on average.

The same companies will charge a 50-year-old man around £20 monthly for the same cover over 10 years, with women again paying up to £4 less monthly.

Costs can be cut further by buying pension term assurance which is tax-deductible. For example, £100,000 cover being bought at £120 for the year could be cut to £97.92 for a basic-rate taxpayer via pension term assurance from Legal & General and More Than - a saving of £22.08.

Higher-rate taxpayers can claim extra tax relief via their annual tax return. However, pension term assurance is not suitable for everyone.

Where to go after health problems

EARLIER detection methods, plus advances in medical treatments, mean survival rates with some illnesses such as cancer have improved significantly. However, finding insurance is getting harder than ever.

It is still possible to buy cover, provided you have been clear for a set number of years, although Standard Life is one insurer who has raised the hurdle. Whereas it previously considered applications from someone who had been clear for five years, it is now looking for a decade of good health before it will underwrite.

Head of protection Mick James said: "It is about trying to offer affordable, realistic cover. We were open to risks after five years, but the price of those policies were too high. We hardly sold any.

"This is about offering cover which people can afford to buy."

However, Scottish Widows head of protection Johnny Timpson, said it would look at insuring some cancers if people have been clear for as little as a year.

He said: "Our approach is to be as inclusive as possible. Our customers come in all shapes and sizes. We do our very best to meet their needs. Some companies may be better on price, but they may also be more aggressive when it comes to underwriting."

Lifesearch's Kevin Carr agrees that the downward pressure on premiums has led to a more cut-throat approach by some insurers. He said: "You don't tend to find the companies at the top of the best-buy tables are very interested in insuring anyone with a health condition."

This could lead to further problems, because consumers receive a black mark after applying to a best-buy company only to be refused.

"When they apply elsewhere, they will be asked: 'Have you ever been turned down for insurance?' Now they have to reply 'yes' to that question," he said.

Friends Provident has a good name in this field for treating difficult health risks sympathetically, and is known as the company for diabetics.

However, whereas historically a small group of insurers, which had included Standard Life, specialised in so-called impaired or substandard lives, that is no longer the case. Insurers judge each risk on a case by case basis.

Carr said: "We talk to a range of underwriters about each of our clients, to gauge what terms they might offer. We don't make an application until we know it will be accepted and at what price."

Our baby made us think hard about the future

IT SHOULDN'T happen to a vet, they say, but the bumpy road that is life happens to all of us, which is why Jo-Anne Hastie and her husband Peter decided to review all their financial affairs when baby Struan came along, writes Teresa Hunter.

Although they had been married for six years, the Falkirk couple, who both lecture at vet school, had not bothered with life assurance.

Jo-Anne, 32, who works at Edinburgh veterinary college, said: "We had some cover with our pensions, so we thought that was enough. But after the baby arrived, we wanted more."

They had arranged a mortgage through financial advisers Albannach, so they rang the firm again. It recommended life assurance and critical illness cover to protect their £114,000 home loan. It suggested Standard Life, with a £44 monthly premium.

Jo-anne adds: "Once a baby comes along you begin thinking seriously about the future. You want to be sure that if anything happens to one of you, then things can carry on as normally as possible in the circumstances. You don't want to leave one partner struggling on their own in dire financial circumstances."