Term assurance: Deals improve... at last

After years of being cast as the health and fitness poor relation, men are finally getting a better deal from life assurers.

Less drinking and smoking and a generally improved lifestyle is showing through in cheaper term assurance rates for most men. At the same time, some female rates are actually on the increase as women have adopted unhealthier lifestyles - particularly taking up smoking.

Term assurance provides a good mirror for how life offices are assessing people's health. There is no investment element to cloud the issue - what rates people are charged largely depends on how healthy insurers think different parts of the population are. The generally improving health of the population is prompting some leading life offices to start playing in the term assurance market again, challenging the low-cost direct providers such as Virgin and Eagle Star Direct.

Kevin Sime of Scottish Widows says men aged between 30 and 50 have in general shown great improvements. He says: "More women are smoking, so across the board, relatively speaking, women are less healthy. Men and women are starting to move towards each other." However, female mortality is still far better than men's. So, although the gap may be narrowing, term assurance for women is still far cheaper than it is for men. The other factor in cheaper term assurance rates is the result of cost-cutting by life offices. Scottish Widows now has fewer expenses involved in getting policies on the books. For cases under a set sum assured, depending on age, Scottish Widows will put someone on risk after simply filling in health and lifestyle questionnaires. The company then chooses customers at random to get medical questionnaires filled in by their doctors or to send them for medical examinations.

Norwich Union has been able to cut some of its male rates by as much as 30 per cent. A 55-year-old, non-smoking male can now get £100,000 of level term - a fixed level of cover for the life of the policy - for £52.65 a month, down from £75.40 a month. Female rates have increased slightly. Once again Norwich Union puts the improved rates down to improving mortality in general and cost-cutting on staff and administration in particular.

A more realistic attitude to the Aids risk is also a factor for some offices, after initial projections put together in the 1980s have proved to be far too pessimistic. Peter Telford, of Legal and General, says: "Aids is still something the industry and actuaries keep a very close eye on. It is the one exception to the general rule that mortality costs are going down. But it is not as much of a disaster as was first feared." It says that, as mortality improvements have generally been across the board, it is aiming to offer keen term assurance rates to most groups.

Colin Ledlie, of Standard Life, says: "We want to be as competitive as possible across the board. Most proposals will be accepted at normal rates. There will be some loading, but there will be no cherry-picking to the extent some players do."

So what does this mean for the ordinary man in the street? The answer is the possibility of cheaper life cover. There is nothing to stop customers shopping around for cheaper cover than they have already. Since term assurance involves no investment element, there is no cost to move to another insurer. Customers can move to a different insurer and get either the same level of cover cheaper, increase it for the same price or add extra bells and whistles such as critical illness cover, which pays out on diagnosis of one of a list of serious illnesses, for the same price.

A homeowner with a repayment mortgage is likely to have decreasing term assurance, where the cover falls as the loan is paid off. It may be possible to take out a new decreasing term policy for the same cost for the same initial period of time at the original level. This will give greater cover over a longer time.

But be warned, there are pitfalls in doing this, as Mal Mercer, of independent financial adviser Duggan Mercer, explains. Rates may be cheap, but, to make rebroking worthwhile, it has to be done on standard terms. As anyone doing this will by definition be older than when they took their existing plan out, their health may have worsened. Mercer points out that particularly for older ages, generally over 50, underwriting gets stricter. Anyone thinking about moving to another insurer must make absolutely certain they have been underwritten on the same rates as they were initially offered by the new company before cancelling their old term assurance policy.

Get this wrong and you could end up with no life cover at all. Not all companies are competitive across the board. For example, Norwich Union tops the table for a 40-year-old male non-smoker chasing £100,000 of cover for 25 years at £24.60 a month. But, says Annuity Direct, the same amount of cover for a 35-year-old, non-smoking woman is £18 a month - almost twice the cheapest monthly premium of £10.90 from Legal and General.

Using an independent financial adviser may turn out to be the cheapest option in the long run.

Source: FT: MARCH 21 1998