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Unlocking income protection for clients with pre-existing conditions

Obtaining cover for people with medical issues can be difficult, so is it best left to the specialists?

Protecting a client’s income is viewed by many advisers as the foundation upon which other aspects of financial planning are built. However, for clients with pre-existing health conditions, obtaining cover may not be that easy. Depending on the severity of the condition and an individual’s medical history, cover may be offered with loaded premiums, exclusions or not at all.

Providers say it is difficult to set out their stance towards those with pre-existing conditions, as there are many variables. These include the nature of a condition, how people manage it and whether they take medication. So, given the complexities, is it something best left to protection specialists?

Relevant experience
Demonstrating that a condition is managed can mean a small premium increase through some insurers rather than an exclusion.

“To do this well needs much relevant experience and a whole-of-market choice of insurers, something fewer advisers now have as routine,” says Lifesearch chief executive Tom Baigrie.

“As specialist protection advisers, we’d never not explore the options available to someone if there was a chance they can be protected – even with a loading or exclusion. We’ll look for the best cover and discuss this with our clients to make an informed decision.”

Alan Knowles, managing director of Cura, which specialises in insurance for people who are seen as high-risk, quirky or non-standard, agrees that experience can make a big difference to the outcome for clients.

“Some insurers have problems with certain types of medication and general IFAs are not going to know that. Income protection is quite a complicated product anyway, and with the complexity of underwriting they won’t realise some people will get rejected for cover,” he says.

Critical illness vs income protection: Which is easiest for advisers?

Highclere Financial Services partner and CIExpert director Alan Lakey regards himself as a protection specialist, but even he refers clients to firms such as Cura. In his experience, trying to obtain income protection for clients with some pre-existing conditions is “like trying to get a mortgage when someone has failed a credit score”.

“Smaller friendly societies are more flexible but even they have limits,” he says. As an example, he points out there are many reasons for mental health conditions – one of the top three reasons for claims on income protection policies.

“Sometimes it is due to a one-off event like the death of a parent or child, and so not likely to recur, but it is often treated by insurers in the same way as conditions like manic depression,” he says.

Having a conversation
Providers say the last thing they want to do is decline cover, so they look at how cover can be offered in each case. Both Royal London and LV= say that where cover cannot be offered on standard terms, they will look at premium increases – and where the risk is too high to do this, will look at exclusions. Both say they regularly review the terms, so it is possible to reverse premium loadings and exclusions over time if conditions are well managed or do not recur.

Lifesearch is seeing fairer treatment from some providers where a history of depression or anxiety is very mild, with short-term or no treatment and no time off work. “We can get such customers terms with no exclusion or even a much shorter exclusion period of say the first 12 months of the plan, rather than the two- to three-year or total exclusion that tends to be offered,” says Baigrie.

Tom Baigrie: Protection referrals are key to building trust

Knowles says some providers are willing to have a conversation rather than adopt a “computer says no” attitude but, like many advisers, he struggles to get cover for people with type 1 diabetes.

“Some will consider it with loading or exclusions but they have such tight criteria when considering offering cover,” he says. “One client has type 1 diabetes but is fitter and healthier than the average person. He has taken no time off work, his financial resilience is fantastic and he monitors his health to keep himself well. Someone like this should be rewarded, but if he goes to most providers he is told they don’t take on diabetics.”

Signposting to specialists
If advisers are frustrated in their attempts to cover some clients with pre-existing conditions, improvements may be on the horizon. Drewberry head of protection advice Rob Harvey says that the Access to Insurance Working Group, of which Drewberry is a member, is looking into widening access to insurance, especially for those with pre-existing conditions and disabilities.

Protection market growth estimated at 20% in 2018

“One of the key things we’re expecting to come out of the working group is that advisers and providers will need to signpost clients who’ve been declined to specialists in their field,” he says.

“A decline might be due to the fact the adviser is tied to just one insurer which has turned the client down, or because a client has gone direct to the insurer and not looked into getting cover through someone with access to the wider market.”

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