Those with health problems usually have enough to worry about without having to suffer a further double dose of punishment when applying for life and health cover to protect a mortgage.
But, if granted cover at all, they are likely to have to pay significantly over the odds for the privilege. It will also take far longer than normal to get on risk creating delays during the house buying process.
For life cover only around 1% of risks are turned down altogether but almost a further 10% are granted premium loadings of anything between 50% and 400%.
With critical illness cover, which pays out a lump sum if you are diagnosed as suffering one of a stated number of serious conditions, the percentage of non-standard risks is nearer 15% and it should be noted that underwriters can take a very different attitude to some conditions than they do for life assurance.
Someone with even mild diabetes, for example, is unlikely to get critical illness cover at all but, if the condition is diet controlled, they could get a life cover loading of as little as 50%. Similarly someone with a family history of breast cancer might get standard rates on life cover but be charged 50% extra for critical illness cover.
With income protection, which pays a regular income in the event of being unable to work as a result of long-term sickness or disability, the proportion of non-standard risks is nearer 25%, but this figure also includes many applicants with high risk occupations and interests.
Once again different underwriting criteria are involved. Income protection insurers are particularly harsh on those with histories of back problems or stress related conditions and also differ from life and critical illness insurers by excluding individual conditions from cover rather than imposing loadings ‘ although the better critical illness insurers are also now starting to offer exclusions as an alternative to loadings for certain conditions.
While it can be possible to put a standard protection application on risk within 48 hours, a non-standard case can take nearer three months. The main problem is that in the case of a questionable health record an insurer will always require a medical attendance report from the applicant’s GP and may also often require an independent medical examination.
Most lenders no longer actually insist that mortgages are protected by life cover unless the property concerned has a business purpose and this removes some of the sting from delays of this nature. However, if protection is considered necessary by the applicant in the first place then it should be in place by exchange of contract at the latest.
Any customer who is a potential non-standard health risk should therefore be encouraged to apply for protection policies as soon as they begin the house hunting process. Once the insurer has offered terms the application can be put on hold for up to six months.
But there are still some 50 different insurers in the protection market to choose between and some are capable of granting very different terms towards the same risks. Underwriting philosophies can even differ on matters as straightforward as what constitutes being overweight, with some insurers being a couple of stone more lenient than others.
The secret of finding the most appropriate deal is firstly to make initial enquiries by phone with a range of underwriters to establish those likely to consider writing the risk at all and to grant the most favourable terms.
This protects clients against having to declare unnecessary declinations on future applications. It also safeguards intermediaries against being relegated to the back of service queues as a result of becoming known as time-wasters.
The next stage is to submit multiple applications to a short-list drawn up of no more than half a dozen insurers to establish the most suitable.
But mortgage brokers should think carefully about whether they should be handling non-standard applications themselves rather than referring them to specialist intermediaries, most of whom are prepared to do commission splits. With actuaries and underwriters frequently coming and going, the attitudes of individual life offices are constantly changing, so keeping up to speed is very time consuming.
Eric Purdy, managing director of technical resource provider Third Party Claims Management, based in Chelmsford, says: ‘It has taken me the best part of 30 years to be considered an expert but I am still not convinced I am one. In my view whether intermediaries should seek to do non-standard business themselves depends on how often they come across impaired lives. Unless they are working with them virtually every week they should be looking to palm the business off elsewhere.’
Most of the specialist intermediaries detailed below should be able to speed up the application process and track down the keenest available terms for any particular risk.
If a medical examination is required they can usually arrange for the same one to be shared between all the insurers to which they have submitted multiple applications, therefore saving valuable time. Insurers are less likely to agree to this if approached by a non-specialist intermediary. The specialists will be up to date on relevant legal issues.
Brian Lentz, principal of Portfolio Insurance Consultancy, a specialist intermediary based in Hatfield, says: ‘Intermediaries need to be wary of the Disability Discrimination Act because if you discriminate against clients unreasonably, in the sense of ignoring their request for cover or not discussing cover proactively when their case can be shown to be better than average for someone with the same disability, then they can have recourse in law.’
Nevertheless applications made by specialists can easily take between one and two months because each insurer requires a separate medical attendance report. Although GPs receive a fee for each report they complete there is no guarantee that they will do them all at once. The last report to arrive therefore slows down the whole process.
A new specialist intermediary service launched this August is therefore worthy of consideration.The Special Risks Bureau, based in Chelmsford, has created a panel of product providers which all accept the same application form and are prepared to share the same GP report. Its application form is, however, a little more detailed than average, requiring more information about previous illnesses and family medical history.
The new service, which also has a fast track rejection system to prevent applications that have no chance of being accepted from slowing down the others, normally pays introducing intermediaries 70% of the commission it receives.
Garry Heath, chairman of The Special Risks Bureau, says: ‘We will be quicker, dealing with cases in around three to four weeks on average when the industry is actually taking up to six months on some non-standard risks. Reinsurers are confident they will get a better quality of information than they do via the standard system and we will also save the industry £60m a year on multiple administration, including unnecessary GP reports.
‘We can also come up with special deals that tend to revolve around Lloyd’s and the reinsurance market. If it is not possible to get a 25 year mortgage payment protection policy for a former cancer sufferer we might know where to get a five year contract and we may even be able to arrange a yearly policy if someone is recovering from an operation.’
The main drawbacks of The Special Risks Bureau are that it does not yet have a proven track record and that, although it intends to extend to income protection next year, it is currently only dealing with life and critical illness cover.
Those wishing to look further afield should therefore be aware that LifeSearch, based in Milton Keynes, and The Health Insurance Shop, based in the Wiltshire town of Mere, are unusual in offering policyholders discounts by rebating proportions of their commission.
The Health Insurance Shop, which normally pays introducing intermediaries 50% of the commission it receives, can undercut the standard market by up to a third. LifeSearch, whose commission rates to introducers are negotiable, even guarantees to undercut any rival quote on the market.
But mortgage brokers who refer non-standard risks must still be able to recognise broadly when it is and is not worth doing so.
Anyone who is terminally ill stands no chance of getting cover and those who are still under treatment are likely to find it difficult, but the message is that time heals and that almost any curable condition that has received satisfactory treatment may be reviewable in the future.
Those who have suffered from breast, testicular and most kinds of ovarian cancers can often get standard rates five years after receiving the all-clear. It can even be possible to get standard terms several years after a suicide attempt if the GP’s report is favourable.
A non-standard protection case can take as long as four months to complete.
Mortgage brokers should consider referring non-standard cases to specialist intermediaries who may offer commission splits.
Those who have suffered from serious cancers can often get standard rates five years after getting the all-clear