When does a life policy really expire?

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Russell Hutchinson looks at life policies and their real expiry dates.

Tuesday, November 20th 2012, 6:18AM 1 Comment

It’s not as simple as it looks. Sure, there may be an ultimate expiry date some-time in the future but these have been pushed out a long way: some to age 100. Almost no term insurance is in-force by then.

Not least because much earlier expiry ages used to be the norm, and not many people have been around long enough since the change to challenge the upper limits of contracts.

Admiral Lord Nelson had lost an arm and an eye before he was finally finished off by a sniper’s bullet on the 21st of October 1805 – although it took him a couple of hours to die. People joked that he was so tough he could only be killed in stages.

Perhaps insurance is similar.

Even with the simplest insurance, life cover, one of the most valuable benefits terminates a lot earlier: special events increase in cover option.

With our aging population and changing demography the right to increase your cover if you are in a ‘second family’ situation or taking on a lot of debt to start a new business might happen well happen into your 50s and 60s.

I know of several advisers that borrowed to buy client bases in exactly those decades of life.

It is also a time when buying new cover can be harder – it’s unusual for a person aged 60 plus to have no health problems, and some of them can be quite serious.

So what’s the big deal?

Looking at our main insurers and bank insurers, five companies make their special events increase options expire at age 55, four companies make them expire at age 60, and one expires at age 69. If your client is aged 60, and special events could be an issue, then that would be the one to choose.

With Total and Permanent Disablement benefit the situation is more complicated, because the main benefit wording can change depending on how old the client is.

The best keeps the same definition right the way through to age 70. Alternatively one states that no benefit is payable if disability occurs in the last three months of the policy before age 65.

I’d diary to stop paying premiums on that date, if it were my cover.
 

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