Life Insurance Advisors: directory of firms

The three answer different questions. Life cover pays when you die. Critical illness cover pays a lump sum on diagnosis of a condition that meets the policy definition, and those definitions are precise: a heart attack or a cancer has to satisfy the wording, so two policies at the same price can differ substantially in what they pay for.

Income protection pays a monthly benefit while illness or injury stops you working, after a deferred period you choose, usually until you return to work, the term ends or you retire. For most working people it protects against the most likely event, and it is the cover most often skipped.

Compare the deferred period, whether the definition of incapacity is own occupation or something weaker, whether benefit is guaranteed or reviewable, and whether the policy pays proportionately when you go back part time.

Applications are underwritten on health, family history, occupation, travel, smoking and alcohol, and dangerous pursuits. Depending on the sum insured and your age, the insurer may ask for a report from your GP, a nurse screening or blood tests.

As a consumer your duty is to take reasonable care not to make a misrepresentation to the insurer. That duty replaced the older requirement to volunteer material facts, which is why insurers now ask detailed questions: answering them accurately is what discharges the duty. Underestimating alcohol or omitting an investigation that came to nothing is how claims come to be contested years later.

Underwriting can produce a loading, an exclusion, a postponement or a decline rather than a simple yes. A broker can approach insurers whose underwriting is more accommodating for a particular condition, and can ask for a pre-application enquiry so that a decline does not sit on your record.

A life policy written in trust is not owned by you when you die, so it can usually be paid to the trustees without waiting for probate and without forming part of your estate for inheritance tax. A policy left to the estate joins everything else and can be taxed.

Whether that matters depends on the estate. Inheritance tax is charged at 40 per cent on value above the threshold, so a large policy falling into a taxable estate can lose two fifths of itself to tax that a trust would have kept out of reach. HMRC sets the threshold, and there is an extra allowance where a home passes to direct descendants, so check the current figures before fixing a sum insured.

Trusts are a legal arrangement with consequences, including who the trustees are and how much flexibility they have over beneficiaries. Insurers provide standard trust forms and advisers routinely help complete them, but where the estate is complicated, or where a business or a second family is involved, take advice from a solicitor as well.

Protection is the part of UK advice where commission survived. The ban that followed the Retail Distribution Review applies to personal recommendations on retail investment products, so an adviser cannot take provider commission for advising on an ISA or a pension, but pure protection contracts such as term assurance sit outside it and are still commonly arranged on commission paid by the insurer.

That is not a hidden cost in the sense that it is unknowable: ask how the firm is paid, whether it charges you a fee as well, and whether commission is clawed back if the policy lapses early, because clawback is what makes some firms reluctant to revisit an arrangement soon after it starts.

Long-term insurance, which includes whole of life, term assurance, critical illness cover and annuities, is protected by the FSCS at 100 per cent for failures after 8 October 2020. Income protection and claims arising from death or incapacity through injury or sickness are also protected at 100 per cent. There is no upper cash limit on that protection.

If a claim is declined or an application was handled badly, complain to the firm first. It normally has up to eight weeks to respond. You can then take it to the Financial Ombudsman Service within six months of the final response, free of charge and without paying anyone to represent you.