Additionally, rather than require the policyholder to come back when they do have less than 12 months to live, the insurer can contact their consultant directly to stay informed about how their condition is progressing.
Language problems
A further area where more work may be required is raising awareness of the type of claim that qualifies for terminal illness. Mr Lakey explains: “People confuse terminal illness and critical illness, so you see claims submitted for a heart attack on a life insurance policy, even though the person is likely to make a full recovery.
“It is right that such a claim is turned down, but as these declines sometimes end up with the Financial Ombudsman Service, it is not good for the protection industry’s reputation.”
Rather than terminal illness, he believes a more descriptive label such as accelerated death benefit could help to put some distance between this benefit and critical illness insurance.
There is also plenty of debate in the industry about where the trigger point for a terminal illness payment should be set. While a life expectancy of 12 months is fairly standard, Mr Jacobs says there is room to move it either way.
“Whether you extended it to 18 months or reduced it to six months, you would probably find that fewer claims would be declined,” he adds. “It is important to make sure people understand what is covered and how this benefit works.”
Another option frequently discussed is switching from paying the full sum insured to making a partial payment when a terminal illness is diagnosed. This would mean money is available to support the policyholder during their last months, while also ensuring the bulk of the sum insured remains in place to provide for surviving family members.
As terminal illness claims become increasingly common on life insurance, it will be important for the protection industry to provide consumers with a clear definition to avoid any confusion.
Whether or not the ABI goes ahead with its proposals to remove the model wording from its minimum standards on critical illness insurance, having a definition and support that demonstrates the value terminal illness benefit delivers to consumers is essential.
BIG NUMBERS
36,814
Number of life insurance claims paid in 2016 (ABI)
£2.8bn
Amount paid out in life insurance claims in 2016 (ABI)
15,464
Number of critical illness insurance claims paid in 2016 (ABI)
£1.1bn
Amount paid out in critical illness claims in 2016 (ABI)
26%
Percentage of life insurance claims that were for terminal illness benefit in 2016 (Aegon)
