Top Ten Tips: Gender ban: don’t lose out

NEW rules banning insurers from using gender in setting prices will come into force on 21 December – and they will have a huge impact on insurance contracts and annuities.

The implications will vary with gender in the move to neutrality, with women facing more expensive life cover and critical illness insurance, for example, and men set to pay more for annuities and income protection.

Here, John McKendrick, a senior independent financial adviser at French Duncan (Financial Services), offers his tips on ensuring you don’t lose out.

1 The final countdown

Women considering taking out life cover should take immediate steps to do so if they want to avoid a steep rise in premiums after 21 December. That’s because the change is set to impact disproportionately on women. Indeed, female rates for life cover are predicted to rise by more than 20 per cent, while the equivalent male rates are anticipated to rise by around 3 per cent.

2 Critical to act

The cost of critical illness cover for females over the age of 50 is also forecast to rise by more than 20 per cent when the new rules are in force. Again, the rate for men in the same age group is expected to rise by around 3 per cent only. It makes sense for everyone, especially women, to take out critical illness before this deadline.

3 Age concerns

At younger ages, under age 45, female critical illness cover rates may be higher than male rates. That’s because females have a high cancer risk at these ages. At certain older ages, male rates are generally higher because men have a higher risk of cardiovascular disease. The introduction of gender neutral pricing will see male premiums fall and female premiums rise. So while men might wish to delay taking out critical illness cover until next year, women might be advised to act without delay.

4 Income protection impact

When it comes to income protection, males should act immediately to seek cover prior to 21 December, while females should wait until after that date. That’s because female rates for income protection cover are currently significantly higher than male rates at all ages and the introduction of gender neutral pricing will see male premiums rise and female premiums fall.

5 Inherent risks

Women currently pay up to 65 per cent more on average on income protection insurance because statistically they are more likely to claim. After 21 December, female income protection premiums are expected to fall by up to 28 per cent. But although it might, on the face of it, appear tempting for women to defer applying for income protection until after 21 December, the risk associated with such deferment is that their circumstances may change in the interim, such as developing a health problem, which could make securing income protection insurance problematic.

6 Timing is everything

To make sure you’re not caught out by rising prices, it might be a good idea to speak to a financial adviser as soon as possible because although some people will be accepted immediately for cover, others might have to wait for medical reports which might run past the deadline. Quick action could ensure you can beat the rule change and save money before it’s too late.

7 Price isn’t everything

The cost counts for a lot when it comes to insurance, yet low premiums may come with cover that isn’t the most appropriate for your needs. And for a product such as income protection, the decision-making process can be more complex than for the relatively straightforward life cover. A cheap policy may ultimately be worth it, so make sure you look at all the factors, such as the product exclusions.

8 Pension penalty

The gender rules will have no direct effect on occupational pension schemes, but they will have an indirect effect insofar as the cost of purchasing annuities will increase slightly for men and by less than the corresponding reduction for women as more men purchase annuities.

Men planning to buy an annuity over the coming months may want to consider doing so before 21 December.

9 Invest in advice

Taking independent financial advice can be crucial. That’s because, rather than merely comparing premiums, IFAs will consider the quality of cover and the underlying policy provisions. They will know what to look out for and be able to advise on what’s available across the market.

10 The bottom line...

is that insurance cover in particular is going to end up costing more for everyone after 21 December. This will be made certain by the introduction on 1 January 2013 of a new corporate tax regime for life insurance companies, which will see them lose a tax break that enabled them to offer lower premiums. This will inevitably lead insurers to offset this loss by raising premiums even further.