As a result of the lockdown many families have seen a reduction in income due to being furloughed or unable to run their usual business if self- employed. Others have applied for Universal Credit because they do not qualify for the Covid 19 Government support schemes. At such a time, premiums for life and health insurance may seem unaffordable or direct debit payments may be accidentally missed, while waiting for grants to come through.
If premium payments cease and are not reinstated, cover will usually lapse after a given period. This varies from policy to policy but can be as little as 30 days or up to 4 months. This will be detailed in the policy document. If premiums are missed accidentally it is important to act as soon as aware of the missed payment or cover may be lost, or only available after fresh underwriting has been completed. Reinstating cover can be more expensive as the cost usually increases with age and if health has deteriorated it may not be available at all.
Maintaining life and health cover is likely to be important to long term financial well- being. If worried about the affordability of premiums, then talk to your adviser who will be able to help explore all the options available. During the current emergency many insurers are willing to be flexible in their approach and some have introduced special terms for a temporary period to help policyholders who may be facing temporary hardship.
All existing policies will pay a claim where Coronavirus is the cause of death, so long as other conditions of the policy are met.
Your policy may also contain some special features which are designed to help with payment of premiums when circumstances change, and you may have chosen to include these in your policy. These include: -
- Waiver of premium, if unable to work due to sickness or redundancy. This benefit enables premiums to be paid by the insurer for a given period so that cover may be maintained.
- Career break option where an individual takes a career break to travel, study, start a family, or is made redundant this option will allow the cover and premiums to be suspended for a given period and reinstated later, without the need to provide medical evidence of health and on the same terms as the original cover and premium.
The exact terms of these options, if they are included, will be set out in the policy document and will vary from one policy to another. Your adviser will be able to help you assess if you are eligible to exercise these options and if it is in your interest to do so.
- Reduction in cover can be implemented at any time but should probably be only exercised as a last resort, unless it is no longer required to protect your family from the financial impacts of death or ill health of a breadwinner or carer. This involves reducing the premium and cover proportionately and can be a better option than cancelling the policy completely. If considering this option advice should be sought as cover may only be reinstated following full underwriting and may cost more or be unavailable.
- Employer funded cover may still be available if you remain employed and are on furlough or reduced hours. Depending on the terms of your employer funded scheme, the sum assured may or may not reduce if your pay reduces due to furlough or short time working. To be sure what you are covered for check with your employer.
Ensure that your nomination form is up to date so that the scheme trustees know who you want any claim paid to. They are not obliged to follow this but usually do so and any payment from an employer sponsored scheme does not usually form part of your estate for inheritance tax purposes.
If made redundant, any employer sponsored cover will usually cease on termination of employment. This makes it even more important to maintain your personal protection insurance or to increase it to make up any shortfall. Your adviser will be able to review this with you and offer suitable solutions. Any personally funded cover may need to be placed in trust to enable the payment of any claim to be made to your chosen beneficiaries and outside of the taxable estate.
If you have less cover than needed to meet your family’s needs, it is still possible to obtain insurance up to certain limits without medical examinations and your adviser will be best placed to assess your needs and recommend how best to fill any gaps.
Kay Ingram
Director of Public Policy
Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.
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