For or against
Although terminal illness is rarely used on critical illness insurance, the proposal to ditch the model wording has received a mixed reaction. Alan Lakey, managing director of CIExpert, is in favour of its removal. He says it should never have been considered as a condition as it is simply an accelerated death payment.
Mr Lakey adds: “The industry has got itself into a bit of a tizzy about this. The only reason it became a model wording is because the ABI set a rule that it would look at anything offered by at least 75 per cent of insurers. It is not a critical illness and it should never have had a model wording.”
Unfortunately, removing it from the ABI’s model wordings may not be quite so simple. Ruth Gilbert, who heads up consultancy Insuring Change, says the protection industry risks further damage to public trust if it drops minimum standards for terminal illness claims, due to the high level of claims for it on life insurance.
In particular, she points to the small but growing part of the protection market that goes direct or unadvised. She adds that, to simplify products for the direct market, there may be a temptation to remove the terminal illness benefit altogether or adopt a more diluted wording.
Ms Gilbert explains: “Having model wordings helps reduce confusion with multiple versions. We should instead be improving it to help manage consumer expectations and ensure consistency in claims handling. Terminal illness is the second most frequent cause of claim for protection lump sums, the hardest to decide – apart from total permanent disability – and the most time critical and emotionally sensitive.”
The right model
Regardless of whether or not the ABI’s critical illness insurance minimum standards are the right place to set the model wording for terminal illness cover, there is certainly some room for improvement in the way this benefit is applied on life insurance.
Mr Jacobs says that confusion can arise as a result of a mismatch between medical and insurance language. “Our definition for terminal illness states that the claimant must have less than 12 months to live,” he says.
“Unfortunately, a doctor is much more likely to say someone is terminally ill without necessarily specifying a length of time. This can result in a terrible situation where you have to tell a customer that they are not terminally ill enough.”
To reduce the frustration that can be caused if a policyholder is told to come back when they reach the 12-month point, insurers are offering support to these people. For instance, once a policyholder notifies them that they have a terminal illness diagnosis, Aegon can stop collecting premiums, deducting any that are not paid from the sum insured. This reduces the risk that the policyholder cancels their cover.
