Mental health conditions such as stress, anxiety and depression are common, with figures from Mind showing that around one in four people in the UK experience a problem every year. But taking out protection can prove difficult and expensive for some people who have experienced mental health issues in the past,
The issue was highlighted in Radio 4’s Money Box in December 2018. The listener, a 37-year-old woman, wanted to take out life insurance and critical illness to protect her young family and searched for cover online.
Pleased with the prices she was offered by an aggregator, she went through to the life insurer’s website to complete the application, only to find that her premium was loaded by 30 per cent as she had suffered postnatal depression in the past. This price hike, which meant she would pay an additional £3,000 over the course of the policy, meant she was forced to reduce the level of cover.
Understanding risk
Her experience highlights a number of issues faced by individuals who have had mental health conditions and want to take out protection. “This woman should have got standard rates,” says Alan Knowles, managing director of Cura Financial Services.
“Unfortunately, the cheapest rates on aggregator sites are often from companies with the strictest underwriting criteria. This also creates a lack of transparency: once the premium is loaded, the individual thinks they must be a higher risk and accepts they will have to pay more.”
Although some insurers will see a mental health disclosure as a trigger for loading the premium, many are prepared to take a more considered approach.
Johnny Timpson, financial protection specialist at Scottish Widows, says: “In this case, the application was probably never seen by a human. If she had come to us, an underwriter would have wanted to know more about her situation and the treatment she received. With this information we would have been able to give her standard rates.”
The high probability of receiving standard rates can be seen in disclosure figures from Scottish Widows Protect. These show that in 2017, 52,000 of the 76,000 applications included some form of disclosure, equivalent to around 68 per cent of cases.
However, in only one in 10 of these disclosures did the health issue have a bearing on price. Of these, the most common disclosure was for mental health issues, which accounted for 12 per cent of cases, with back problems in second place at 6.6 per cent.
When the disclosure was for a mental health condition, 78 per cent were offered standard rates, with 95 per cent offered cover.
“The key message is that most people will get some form of acceptance, with the majority offered standard rates,” adds Mr Timpson. “We must ensure that individuals with any health issues, mental or physical, do not feel they cannot get cover.”
Underwriting clarity
Incorporating more of a human touch into the underwriting process ensures that individuals are offered the right price for their cover, but as this can be resource heavy there is also room for improvements to the question set used in applications.
