Vitality has launched a new mortgage protection plan that offers simple but comprehensive cover designed specifically to meet the need for mortgage protection.
The plan can enables customers to choose one or more of life cover, income protection, serious illness cover for children, waiver of premium and a new Serious Illness Cover Protector, which is specifically designed for mortgage protection. One key feature is there are just five medical questions, and a quick and easy new application process (called Optimiser Underwriting) so customers can be protected in minutes. Serious Illness Cover Protector offers:
• Severity-based cover, with 145 conditions, including 40 conditions unique to Vitality.
• 77 conditions paid out at 100% of the sum insured to fully cover the mortgage after suffering from the most severe conditions. This includes heart attack, cancer and stroke.
• 68 conditions paid out on a severity basis between 15% and 75% of the plan amount. These claims do not reduce the amount of life or serious illness cover remaining for further claims.
Life cover on the plan can be either level, indexed (the sum insured rises each year in line with inflation as measured by the RPI) or decreasing to match a repayment mortgage at a 10% interest rate (the higher the rate assumed, the slower the sum insured decreases over the policy term). The minimum premium is £30 a month or £40 a month for joint life cover.
Vitality Optimiser allows customers to earn premium and other discounts and also to get cashback and a range of other benefits.
Mortgage Free Cover is available to cover the period before the plan starts officially. This begins on the later of the date of the acceptance letter and the date the customer becomes legally committed to the loan, and the plan application must meet all of the following criteria:
• The plan is being used to cover a loan arranged through a recognised financial institution.
• The loan is being used to buy or improve the insured’s home.
• The loan is not being used to pay for a remortgages.
• The loan is not covered by another life insurance policy or free cover arrangement similar to Mortgage Free Cover.
• VitalityLife has accepted the application (i.e. there are no outstanding underwriting requirements).
• The period from when the application was received to when the insured is legally committed to the loan is less than four months.
Comment: VitalityLife’s serious illness proposition works well generally but on mortgages could mean a partial payment some way below the mortgage amount outstanding. Vitality has addressed that by maximising the number of 100% payments and making other tweaks to the cover.
After years of ‘over-underwriting’ it is good to see this plan going back to the 1980s model of asking just a handful of questions for mortgage applicants. The logic of that approach then was that taking out a new mortgage minimises the risk of anti-selection, although it did mean higher claims too. But, unless you buy on price only, the increase in claims and premiums is relatively light and is a price many homebuyers would be willing to pay. For mortgage brokers, the more hassle-free the mortgage protection, the less time it costs them, and that is important post MMR when the mortgage advice process itself has been elongated. Having free cover available fits the mortgage market need well too.
In conclusion, the plan offers a lot of cover options, optimised to meet mortgage market needs. The flipside is quite a complex product and advisers often either love or hate that approach.
Plus points: Better mortgage cover, tailored for homebuyers; Simpler to buy and a quicker process for advisers too; Just five health questions; Fast underwriting; Free cover is a practical problem solver; Cover can include serious illness and income protection cover as well as life cover.
Not so plus points: Fewer medical questions is likely to mean worse claims experience – but that is probably a price worth paying; The plan is quite complex, with a great number of customer choices to make.
Rating (max 10): Overall: 8.5 Gold
Tags: CI; VitalityLife