Confidential life insurance is a good example of a number of niche life insurance policies that are becoming more popular each year. Such policies have become an important tool to allow people to plan financially and protect themselves from real risks they can’t control.
Confidential life insurance is the ability to insure another person who you have a genuine financial interest in without their knowledge.
The main advantages are as follows:
- The person that is ultimately being insured does not have to undergo any type of health check, their medical records are not requested and they do not have to complete an intrusive form.
- The person who is insured against does not know that you have such a policy in place.
- The insured person is not involved in the insurance policy, so they do not know their value to you.
- There are usually tax benefits, such as the payments being deductible against earnings.
- It only needs to be renewed annually.
Who should use confidential life insurance:
As a very specialist type of insurance it is only designed for particular uses, and is certainly not for everyone. These are the most common uses, although it can be used by anyone with a legitimate financial interest in another individual.
- Business partners often have a significant financial interest in their other partners as their would be huge financial consequences if their partner was to suddenly become ill. For example, it can be used to cover the repayment of bank loans.
- Divorce settlements are an ever more common use of confidential life cover, before and after a divorce, as you can insure against the death of your former partner who would be paying regular payments.
- Sports teams use confidential cover to insure their best talent.
- Movie production companies also use this insurance to protect themselves financially if one of the stars is unable to work.
Confidential life insurance is harder to price than regular term life insurance because it is not a case of looking at mortality rates and adjusting for personal variables such as are you a smoker and how much cover do you want. Instead the premiums will be based on age, occupation and lifestyle of the individual. There is also less competition than more vanilla life insurance plans so the prices can be very high.
If it is not a problem that the insured person knows they are insured, you can persuade them to take out comprehensive life cover. This would be a significantly cheaper option but does not provide identical cover. Many insurers also offer Key Man life insurance where an important employee of a company is insured as their loss would be a disaster for the company.
This type of insurance is only for those who have a legitimate financial interest, and you will need to provide sufficient evidence such as contracts to buy a policy. Clearly there is scope for misuse but any underwriter will be slow to payout if they think there has been any foul-play.
As this type of cover is specialist you will need to speak at length to an advisor and explain your situation before you get a quotation. Because premiums are high it is even more important to shop around and speak to as many providers as you can. So speak to an Independent Financial Advisor or life insurance broker and they will help you find a suitable policy.