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What insurance is

Insurance is really a way of betting against particular things happening. So that if that particular thing happens, you or your family will get money to help cover the costs. If you insure your possessions and lose one, the insurance company will pay to cover the cost of what you have lost (in theory!). So life insurance will pay out to your family if you die. For many of us, this is relevant because we need to have it to get a mortgage. Although many lenders do not insist that you have a life insurance policy to get a mortgage, they do still strongly recommend it. The point of having the life insurance is that it pays out if you die to cover the mortgage. Your financial adviser can talk over with you whether it is the right thing for you to do.

The insurance money paid out comes from a fund of money made up of the premiums all those insured have paid. Some companies will also re-insure. This means that they take out insurance against having to pay out to you.

The cost of insurance depends on a number of factors. The most important of these is how likely it is that the event insured against will happen. And particularly whether the policyholder is above or below average in risk. So, if you are terminally ill, no company will give you life insurance.

Insurance companies cannot discriminate against one group of policyholders unfairly by charging too high a premium in order to subsidise the cost of insurance to another group.

It is very important to realise, and to take into account that each case of insurance varies from person to person and from company to company. You must make your own enquiries and check carefully what companies offer against your own particular circumstances and requirements. A good financial advisor will check the rates of all insurance companies on your behalf and then recommend the best deals for your circumstances.

 

Life insurance and cancer

If you have had cancer and you are looking for life insurance, there are certain factors the insurance company will take into account and that will influence the policy. These include the type of cancer that you have and how far it has developed.

Insurance companies base their policies on the staging classifications of cancer made by hospitals – in other words, on the cancer type and on how early or advanced your cancer is. With your permission, they will write to your doctor or hospital, asking for medical details that could affect your policy. The insurers have a duty to base their assessment on information that is relevant and from a reliable source. They might also ask you to have a medical examination before they are prepared to issue your policy.

With most cancers, life insurance companies are unlikely to issue a policy for at least 2 to 3 years after you've recovered from that cancer. When a policy is issued, the first premiums will be high because that is the time of the greatest risk to the insurance company. (For most cancers, the more time that goes by, the lower the risk of the cancer coming back.) You will need to talk over your individual case with your life insurance company, who can tell you more about how this will personally affect you.

There are special rules about insurance in the Disability Discrimination Act (DDA). This Act applies to you if you have cancer, or have had cancer in the past. You can find out more about the DDA in the questions and answers section.

 

If you already have life insurance

If you already had a life insurance policy before you were diagnosed with cancer, the company should honour it as normal, as long as you were honest about your medical history when you took the policy out. You might find it difficult to increase the value of your policy for some years. But it is important to keep it up. It will be easier for you to do this than to start a new life insurance policy after your cancer diagnosis.

If you want to increase your cover, you could ask your adviser about using a 'special event option'. Some insurers offer this, but not all. It means you can increase the cover with no underwriting, subject to certain events happening in your life, such as the birth of a child, marriage or moving house.

 

Optional extras

There are additional sections in life assurance policies that help people with cancer to pay their premiums. There is also an additional feature that pays out a lump sum, if the policyholder contracts one of the illnesses which is in the policy at the start. This could be useful for people who have a cancer that runs in their family. What is, or is not, included will depend on your requirements and underwriting.

 

How to get the best terms

There are some general guidelines that you should be aware of when buying insurance

  • Before approaching an insurer you may want to discuss your situation with your hospital consultant so that you have some idea of the medical opinion the insurer will be given
  • Make informal enquiries with a number of companies first

If you make a formal application, and are turned down, other companies are allowed to know. So this will influence their decision. They might not want to insure you at standard rates if others won't. So make informal applications first and see who gives you the best replies. You can follow those up with a formal enquiry. If you are unhappy about doing all this yourself, you could call on the help of a financial adviser, or insurance broker and get them to make the enquiries for you. You may not have to pay for this – most financial advisers make their money from commission paid to them by the insurance company when you take out a policy. The advantage of using a financial adviser is that they have knowledge of the whole market, who is doing particular deals and where best to place their clients' business.

 

Finding a broker

When you are choosing an adviser to help you find an insurance policy, you should always check that they are reliable and sincere. To do this

  • Ask people you trust to recommend people to you
  • Always check a few brokers – don't settle for the first you find
  • Ask for a proper consultation with their most experienced negotiator
  • You need to feel comfortable with the broker and make sure that you can trust them
  • Disclose all relevant information to your broker, so the company cannot cancel your policy on the grounds that they have not been properly informed

A good way of comparing companies is to work out the total cost of premiums over the whole period and compare those figures. Then you can see if a company is setting impossibly high premiums because they don't want to insure you.

 

Types of life insurance

Life insurance can help to protect your family in the event of your early death. It is a means of protecting and can be a means of saving. There are three basic types of life policy

Term insurance (TI)

This is the most straightforward and cheapest form of life insurance. It covers you for a set amount of years. You can arrange cover that can be as short as 1 month. So it will only pay out if you die within that specific period. If you live to the end of the term, you will receive nothing and you won't get any of the money you've paid out back. If your circumstances change and you need cover for longer, you may be able to extend the policy. But there may be an increase in premium. Some policies can be converted into whole life policies or endowment policies. If you are not able to extend the term of your insurance, you can apply for another policy to cover the shortfall, or for a longer period.

Some companies offer term insurance policies with reviewable rates rather than guaranteed rates. This means that they could increase the cost of your premium payments in the future, following a review of your policy. Although a guaranteed rate policy may cost more to start with, it may well be cheaper in the long term because the insurer cannot increase the cost of your premium payments once the policy has started.

People on a limited income may find that this type of life insurance is best for them, as the period of cover can be as long as you wish. And once the policy is issued, the insurers cannot increase the cost of your premium payments, so it is easier to budget. This type of insurance can be useful for covering periods of high expenditure, such as when you have growing children, or to give you cover for the period of a mortgage. The Insurance Companies Act 1982 and an Association of British Insurers (ABI) code of practice protect you when you buy.

Whole of life insurance (WOL)

As the name suggests, whole of life insurance covers you for the whole of your life. It is insurance protection only, not a way of saving. This type of insurance gives more extensive protection than TI and can give you piece of mind as your family will get a lump sum when you die as long as you keep up the payments. If you stop the payments, the cover will lapse or be reduced.

When you buy WOL the regular premiums that you have to pay are not fixed. So the insurer will carry out reviews of your policy and can increase the premium from time to time - as often as every 5 years if you are over 60. If you are over 70 to 75, the premium payment may be reviewed as often as every year. The increase in premiums can be quite a bit, particularly if you are over 60. There is a type of WOL called 'standard cover', where the premiums are higher to start with but may not be increased in the policy reviews.

Endowment Insurance (EI)

Endowment insurance gives insurance protection and some investment value. Although the premiums are higher than with the other two types of insurance, EI will help your family's finances should you die and provide a method of long term saving at the same time. This type of insurance can be taken with or without profits. A "with profits" policy lets you share in the profits of the company – assuming there is one. The profits are normally added to the policy annually, as a bonus. Once this has happened, the bonus cannot be taken away, but bonus rates may change each year. The 'without profits' policy does not share in profits made by the insurance company. You get the basic sum insured only.

Some life policies have optional extras

  • Waiver of the premium – if you cannot follow your normal occupation because of an injury or illness, the insurance company will pay your premiums for you for a set period, so that you can keep up the insurance while you are off work
  • Critical illness cover – this provides cover against the risk of you having a serious illness, such as a heart attack or cancer.

With critical illness insurance, if you develop one of the illnesses listed in the policy, it will pay you a lump sum. You can buy this type of insurance on its own or as an addition to whole life, endowment or term insurance. What is included will depend on what you agree with the insurer.

Do think carefully about what cover you are getting with critical illness insurance. You need to know how likely it is that anyone will get that particular illness. Some of these policies are only designed to pay out for illnesses that are not at all common. In a way, they play upon your fear of a disease and assume that you do not know the real risk of getting it. They are likely to only cover you until a certain age. Some policies that cover breast cancer, for example, may only cover you until you are 50 – the age at which breast cancer starts to become more common. So when you start to really need the cover, you don't qualify for it. Do also make sure you understand the words they use in the policy to define the illnesses covered. If you don't, ask someone to explain – a doctor or nurse for example – before you sign up.

 

Your life insurance needs

In choosing your life insurance, you must be very careful that the policy is right for you and your family. It is wise to regularly review the insurance to make sure that it is keeping up with your changing personal and economic circumstances. Life insurance is a long term commitment. Never surrender a policy without taking expert advice.

 

Changing your mind

You should really know about all the terms and conditions before you take your policy out. But some policies have a cooling off period. In the two weeks after signing the agreement, you can tell the insurer that you do not want the policy. If you are entitled to a cooling off period, the company will send you a statutory notice of your right to withdraw from the policy and you will get all the money you have spent on the premiums back.

 

How to complain

If you are not happy with the service you have been given you should complain to the broker, financial adviser or salesperson who arranged your policy. Your policy document will have details of the complaint procedure. If you cannot get your complaint sorted out at this level you can contact the Financial Ombudsman Service. Or you can contact the Financial Conduct Authority (FCA), previously known as the Financial Services Authority (FSA). These services are free to the public.

The Financial Ombudsman Service

South Quay Plaza
183 Marsh Wall
London
E14 9SR
Telephone: 08000 234 567 or 0300 123 9123 (8am to 8pm, Monday to Friday, 9am to 1pm Saturday)
Email: complaint.info@financial-ombudsman.org.uk
Website: www.financial-ombudsman.org.uk

The Financial Conduct Authority (FCA)

25, North Colonnade
Canary Wharf
London
E14 5HS
Telephone: 0800 111 6768
Website: www.fca.org.uk

Association of British Insurers

51 Gresham Street
London 
EC2V 7HQ
Telephone: 0207 600 3333
Website: www.abi.org.uk

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Updated: 8 August 2013