A tricky shareholder protection case involving an older director with a serious heart condition and a healthy younger director, requiring careful consideration, knowledge and planning to reach a good workable final solution, while being careful to avoid a few banana skins on the way.
When our client approached us to help him find £500,000 life insurance, both he and we knew that it wouldn’t be easy. Aged 55 our client had severe artery disease, sufficient to have required a total of six stents to be fitted over a three year period. The client wanted to ensure that if he died his wife would receive £500,000 and that his 50/50 business partner would be left with 100% of the business.
We began by further researching the client’s medical profile and potentially available options with insurance company underwriters. A specialist insurer suggested they might be able to consider offering terms at an indicative premium of £1182pm, but we felt we could do better! Medical underwriting requirements included full GP reports with cardiologist letters and a medical examination. When final underwriting results came through we had managed to obtain terms at a premium of £365pm. Brilliant!
However the job was still not finished.
A further issue related to the valuation of the business which it turned out was worth significantly less than the amount our client wished his spouse to receive in the event of his death. We explained that there was a straight forward solution to this problem. Rather than conflate the need for a sufficient amount of death benefit for his spouse with the requirement to ensure that he and his business partner received each others shares in the event of death, we suggested he first take out a shareholder protection policy based on a fair and justifiable business valuation. The realistic business valuation given was £200,000 so we suggested a policy for £100,000.
Secondly we suggested he take out a separate life insurance plan for the benefit of his spouse as a Relevant Life Plan. Not only would he effectively pick up tax relief on the lion’s share of the total protection premiums but it also helped to significantly reduce the impact that ‘premium equalisation’ for shareholder protection would otherwise have had on his business partner, who of course would be liable for personal income tax on our client’s shareholder protection life insurance premiums paid for by the business. This was especially significant given that the premiums for his cover were 770% of the cost the premiums for his fellow shareholder, due to his business partner being significantly younger and with no rateable health conditions.
We also gave the client the option (which he took) of further increasing his total life cover by a further £100,000 bearing in mind how difficult it might be to obtain more cover in the future should his health change, as £600,000 was the maximum level the insurer could offer without the need for any further medical evidence.
We arranged the necessary policies for both him and his business partner (£100,000 shareholder cover and £500,000 relevant life cover each) and assisted our clients with the necessary trust documentation for all the policies, making sure that in the event of a claim the right amount of cover ended up in the right place quickly and without any further tax liability. We also provided them with a draft life company double option agreement for them to share with their lawyer.
……..and could you be paying less??
If you have a significant health condition such as diabetes or heart disease and your application for life insurance is accepted, almost always you can expect to pay higher premiums because of your health condition. Insurance companies charge more to cover the higher risk of the policy resulting in a claim.
But have you ever stopped to consider how the extra amount the insurance company wants you to pay compares with the rest of the market? If you did and you looked into this further you might be very surprised at what you might find.
Consider this example – Sarah and Sue are twin sisters aged 40, both non smokers and each requires £180,000 term life insurance over a 25 year term. The only difference between Sarah and Sue if that Sarah has no significant health conditions, whereas Sue has insulin controlled diabetes with average control.
Sarah is able to purchase the required cover from insurance company A at £15.34pm with insurance company B offering her the same cover at £15.73pm – or about 2.5% more than company A.
But for Sue its a different story. Due to her diabetes Company A’s premium increases to £28.08pm. But company B now want a whopping £48.81pm! – which is now over 73% more than company A, or an extra £6,200 over the whole term of the policy.
So why does the differential go from 2.5% to 73%?
The answer lies in the different underwriting decision that that the company A and company B make after looking at the medical information. Not all companies make the same premium pricing decisions. In fact each UK insurance company generally has well over a dozen different premium ratings bands from which to choose when deciding which one to put you into and the key thing is that they dont all choose the same banding!
The moral of the story is that if you have a significant health condition shopping around is even more important than normal and could save you a small fortune. Even if you have alreay purchased cover in recent year after being diagnosed with your condition it is worth doing some research to see if you can save yourself some money.
Finally if you find thought of doing the necessary daunting (which it certainly can be) why not get a specialist broker to have a look for you.
www.moneysworth.co.uk offer a no fee life insurance shopping service for people with health conditions. Its simple to use and Moneysworth do the research for you. You can also call with your enquiry on 0845 430 5200.
I have just read an article in todays Cover Magazine here http://tinyurl.com/7dlbkwe in which Zurich’s head of underwriting is quoted as stating that huge numbers of applications received contain ’embellishments’ of the truth about applicants’ health details.
Why would anyone wish to take out life insurance using information which if succesfully contended at claim stage by the life company might lead to the claim being disallowed? How pointless is that? In stead of (presumably) saving a bit on the premiums, non disclosure risks wasting every penny of the premiums.
Of course in such cases it won’t be the person who is insured who will ever know. It will just come as an extra horrible shock to those who are left. Messy!
As so many of our clients at Moneysworth have pre existing health conditions (including diabetes, heart conditions and other health conditions), it is common for life insurance companies to write to our client’s doctors for medical information before making a final decision. Though on the face of things this might be seen to cause a degree of anxiety during the waiting period, the reality is that at the end of the process clients can feel extra peace of mind, knowing that the insurance company holds a report from their doctor.
In fact in many cases clients say to us that they would prefer the life company to write to their GP so that they can feel safe knowing that medical information HAS been disclosed!
And of course by using Moneysworth our clients know that we have properly researched the market to find the best solution for them individually. Which is important when you consider that different insurance companies charge widely different prices for people with the same health conditions.
So if you have a health condition and want to apply for life insurance make sure that you fully disclose your health information and if possible use the services of a life assurance broker who really does specialise in helping people with pre existing health conditions. That way you will know that you are fully covered and at a good price.
A client recently came to us with a difficult case – subaortic stenosis.
At Moneysworth we do our best to help everyone who comes to us with a health condition to obtain life cover. We deal with a lot of heart related medical conditions, especially heart attacks, angina and heart by passes. However there are of course a number of other heart conditions, including subaortic stenosis.
Like so many who come to us this client was seeking life insurance to cover his mortgage so that the remaining mortgage debt would be cleared in the event of his death, thereby providing him and his family with peace of mind knowing that should the worst happen the family would still have thier home. In this case our client was therefore seeking approximately £150,000 life cover for a 25 year repayment mortgage.
So what made this case difficult? Unfortunately for him, our client was diagnosed in early childhood with his heart condition. Later on in his childhood our client had a surgical proceedure, which could be argued to have been mostly a success, though some some slight leakage was detected for a while after the operation. Over time the leakage appeared to stop and the client now lives a normal life.
We approached a number of insurance companies on behalf of our client who were generally reluctant to agree to provide life insurance. There were no other significant health conditions in this case and clearly most life companies remained nervous about the key underlying health condition – subaortic stenosis. Despite most life companies declining to offer the life insurance we persisted with our search. We know from experience that it does not always follow that every life company will view the same information in the same way and sometimes we have to pass by a number of closed doors before we find one that is open.
Which is exactly what happened in this case. We managed to find a life company who were willing to look at the case differently. After obtaining detailed medical information they were able to view the outcome of the operation more favourably. Whilst they wished to charge a small additional amount to reflect some additional risk, they did not regard the additional health risk factors to be significant enough to warrant declining our client’s application.
So the hard work and patience payed off and in the end we were able to acheive a very positive outcome for our client. Not only were we able to find the total amount of cover that our client was seeking, but we were able to do so at a very attractive premium of less than £17pm.
What a great result!