Life assurance - two identical policies???

There are probably exclusion clauses which will prevent you claiming on both policies. It's a bit like insuring a £10k car with two insurers, crashing it, and collecting £20k. It's not on.

True enough, it's common practice with most forms of insurance where the insurance is specifically designed to cover the cost of loss of/damage to specified items (e.g. car, house, contents etc...) but is this really the same for defined benefit cover such as term assurance where, in essence, the size of your premium pays for a defined level of cover.

Looks like it's a case of asking some very probing questions of teh insurance company concerned and *hoping* that I don't get a numpty on teh other end who doesn't know what he/she is talking about.

cheers, RM

No, Life Assurance is not viewed in that same manner as General Insurance.

"Ronald Raygun" wrote

It's not like that at all - the OP (& partner)'s lives are (apparentlyt)

*not* only worth 100K. If they were, then it may be a good comparison - but if an insurer would insure (with one policy) for 200K, then they are agreeing the lives are worth that.

So, it is more like having a car insurer quote two premiums for insuring a car for 10K or 20K (same car). But if they *would* insure it for 20K, then they are agreeing it is worth that much!

But then the difference is inexplicable. I'm assuming, as RM hasn't mentioned anything along those lines, that the policies are in all other aspects identical.

I find this difficult to understand. I wonder whether you have done it correctly. I see no reason why two 100K policies should be significantly different to one 200K one.

Regarding whether they would both pay out, yes they would. The insurer will probably ask you in the application form if you are taking out or have taken out any other life assurance but unless you are going to end up with a massive amount (which they will query in case you are about to try a fraud) once they have accepted you then they'll both pay if you die. A lot of people have several policies with different companies, so it's quite common.

It's not like car insurance where the issue is the value of the car, and they won't want to pay out - with another insurer - more than the value of the car. If they did, every Tom, Dick and Harry would insure their car with multiple insurers and set light to it.

You'd have to commit suicide or get a hitman to finish you off for life assurance to be comparable to this scenario. John Stonehouse famously disappeared, giving the impression he'd drowned, but I can't remember whether his family claimed on any life assurance. It's possible though, and there have been other scams of this type.

Rob Graham

Yes they are identical.

However, I have now managed to chase down the relevant phone number for Scottish Equitable and I've had a very interesting conversation with a very pleasant and amenable chap who has told me the following:

(1) It's not unusual to find such an anomaly - their business model is designed to be more competitive at certain levels of cover and the mid-range of cover (£200K-£300K) is one of their less competitive areas.

(2) There is absolutely nothing wrong with me taking advantage of this anomaly by splitting my desired level of cover into N smaller policies with payout amounts that fall into their most competitive sector.

(3) As I had suspected, and as a few people had confirmed on here, multiple identical policies will pay out. There is no such thing as alternative cover exclusion in this area of insurance.

(4) In my example above, it is also possible that it might work out even cheaper still if a single level term policy of 100K was taken out with an additional benefit of £100K level term added to it (as opposed to two entirely separate 100K policies) as they offer discounts/extra commissions for additional benefits added to policies. There is nothing stopping you adding identical cover as an additional benefit.

Thanks for the responses thus far - and I hope the above info proves to be useful.

Astonishingly, their (direct, execution only) quote for the 2 * £100K cover came in at a whopping £740.96 per year. However, he was kind enough to double check the cheapest that anyone rebating the full commission is likely to be able to quote for me (based on their highest tier of commission) and confirmed that it is possible to get the cost down to as little as £233/yr, so the above quote from Cavendish Online (who rebate all their commission) is perfectly plausible.

HtH RM

Life insurance isn't about value of a life, or loss of income and/or of companionship which the beneficiary would suffer through extinction of the insured life. It's much more like a straight gamble. The insurers reckon they know the odds, so they take the business.

But it's also about market forces. Most people have a specific reason for wanting life insurance, e.g. to pay off a mortgage or whatever. People's perceived needs will determine how much cover they require, and how much they're prepared to pay for it in premiums.

There may be different kinds of people (in terms of odds) and different numbers of people wanting 200k cover than there are people wanting 100k cover, and for that reason the premiums won't necessarily scale linearly. Their actuarial data may have shown that the odds on a 200k claim are higher than on a 100k claim.

If that is so, they can't let you buy two cheap 100k policies to get the same benefit as from one expensive 200k policy, and so I'd expect there to be some kind of restrictive clause to achieve that effect, since if you want 200k cover (such as you would get by buying two 100k policies) you're in a higher risk group, and should pay the higher premium.

"Ronald Raygun" wrote

So why are you comparing it to car insurance??!

"Ronald Raygun" wrote

... which is 200K for the OP here.

"Ronald Raygun" wrote

It's common to want the cheapest (as long as the product is sufficient quality).

"Ronald Raygun" wrote

That's why there is *underwriting*!!

"Ronald Raygun" wrote

That's why there is *financial* underwriting!!

"Ronald Raygun" wrote

Perhaps so. But insurers, after asking you how much (life) insurance you have elsewhere, don't tend to set the premium rate differently (or do you know any that do?!!) - they will just use this fact to decide whether to accept your proposal or not.

So someone can go to two insurers, get a 100K policy with each, and neither of them will load their premiums any higher due to the life being in the "200K bracket" rather than the "100K bracket".

"Ronald Raygun" wrote

Ronald - please don't forget that you are now talking to an actuary!

"Ronald Raygun" wrote

For non-fraudulent cases, it probably tends to be quite the opposite. People taking 200K cover rather than 100K tend to be more affluent. More affluent people tend to exhibit slightly *lower* mortality. Hence the required premium would actually be *lower* !!

The insurer will try to 'weed-out' fraudulent cases - either at the underwriting or the claim stage - and so are usually ignored (to a great extent) when pricing the policies for standard rates.

"Ronald Raygun" wrote

But they do...

"Ronald Raygun" wrote

There isn't.

"Ronald Raygun" wrote

See above.

Well, the facts seem to be that this is what actually happens, but it's commercial madness, if both the 100k and 200k policies are priced right (in underwriting terms), to allow what the OP proposes.

And if it isn't madness, then it follows that the two policies cannot both be priced right. We must therefore be looking at a plain old-fashioned rip-off, with the 200k policy being overpriced.

So it's a double rip-off!

OK, it's just marketing, then. More affluent people are more easily ripped off because they can afford it. They not only pay more for their houses because they're bigger, but they also pay more per square foot. It seems appropriate, then, that they should also not only pay more for their life insurance but also more per k of cover.

It's just that with the house, it's worth paying extra because it might be better-built and in a nicer area, but the life policy is just about money, the dearer one isn't any "better" than the chepear one. The affluent are just too thick to realise (or care) they're being ripped off, and it takes a canny Scot like Mr Mutton to consider these anti ripoff tactics. I wonder if he's any good at spotting arbitrage opportunities at the bookies, where he can make a guaranteed overall win from a number of different bets on the same race, no matter which horse wins.

Or...it could be the other way around whereby a loophole exists in their pricing that can be taken advantage of by "canny Scots" (footnote: while I live in Scotland, and have done for many years, I'm probably no more Scottish than Don Quixote).

The thing with loopholes is that if enough people take advantage of them, the company will eventually move to try and close that particular loophole...similar to Gordon Brown and tax.

Incidentally...having re-examined the situation, this loophole only seems to exist with indexation included - take off the indexation option and the prices look more linear, with the 200K policy marginally cheaper on a pro-rata basis. Looks like my LT assurance needs will be met with an index-linked policy ;)

Well, I am a mathematician by training (albeit a very rusty one by now...) so in theory it's entirely possible that if I put my mind to it (and reread the required literature) I might find a way of arbitraging just about anything. In practice...if it were that easy, it would have been done to death by now.

Anyway, in the case of horse racing, it would invariably have to be spread amongst a number of bookies as I can't imagine any single bookie being foolish enough to price their odds in such a way that you could play that game with their odds alone (otherwise they wouldn't be in business any more). Of course, with horse racing, the odds are generally stacked against you. I suspect that 99.9% of the time the best you could do would be to minimise your odds of losing at the cost of your expected return (otherwise known as hedging your bets).

RM

Perhaps Don Quijote de la Mancha *was* a Scot. Don is a Scottish name, after all, and look at this:

?X19500&Ye2500&A=Y&Z=5

I thought mathematicians didn't do arithmetic. The arithmetic is the easy bit, the hard part is spotting the opportunities and grabbing them before the odds change under your feet.

Indeed.

LoL

Ah yes...but a good mathematician would simply devise a system where you just plug all the numbers in and it identifies the opportunities for you. The derived equations would then do the arithmetic for you time and time again. If you're clever you could even tap into electronic sources of info so that you don't even have to type the numbers in.

RM