The actual amount paid by critical illness and serious illness policies has seen a dramatic change over the last few years with a number of insurers increasing their partial payments for additional conditions. As well as increasing the amount they will pay for some conditions a number of insurers will also increase the amount they pay dependent on the age of the client at diagnosis but does this offer value for the end client?
Partial payments are generally paid on conditions that are seen as less severe and therefore having a lesser impact on the client’s life. There are a wide range of conditions that fall into this category with all in situ (an early stage cancer that has not spread to surrounding tissue) and low grade (cancer cells that usually grow and spread more slowly) cancers being a prime example.
Traditionally critical illness policies have paid the lower of 25% for the sum assured to £25,000 for such conditions, however in recent times a number of companies have increased this.
*The amount paid will differ depending on whether booster is applied (this is automatically applied for their Mortgage Serious Illness Cover).
The result of this means that depending on the sum assured a client is likely to receive a different pay out from insurers, with some better than others for low sums assured and others paying more for higher sums assured. In Vitality’s case, the amount paid will also depend on the severity or treatment of the condition. If we take the example of carcinoma in situ of the cervix uteri (a condition with high incidence in females aged between 25 and 40), the table below highlights the amount each insurer will pay and the graph shows what this will translate to a different sum assured based on three different sums assured.
As can be seen for this particular condition, LV= will generally pay the least across all sums assured. At low sums assured Vitality will pay less than those paying 25% to £25,000 or more whilst at higher sums assured they will pay more as they do not apply a maximum monetary value. Of the rest, AIG offer the highest payment amount.
For certain conditions, Aviva, LV=, Old Mutual Wealth and Vitality (if booster is included) will also increase the amount they will pay if the client is diagnosed below a certain age.
Aviva’s Extra Care cover (which can be added to their Life Insurance + with critical illness cover or their critical illness + plans) and Old Mutual Wealth’s Additional Care Benefit are very similar. They both provide an additional payment of £50,000 if;
- The client is diagnosed with dementia, motor neurone disease or Parkinson’s disease (including Parkinson’s plus syndromes) before the age of 50,
- The client is unable to perform three or more activities of daily living,
- Within a year of a critical illness or TPD claim the client suffers from locked in syndrome or in a permanent vegetative or minimally conscious state; or
- On the first anniversary of a critical illness or TPD claim the client is suffering from permanent severe heart failure or failing three of six activities of daily living.
LV= will increase the sum assured to 1 ½ times the sum assured subject to a maximum of £200,000 more than the amount of cover if the client meets the definition of 6 full sum assured paying conditions before the age of 45.
Vitality on the other hand will increase the sum assured by an extra 2.5% for every year younger than 64 the client is when qualifying for the definition. If the client has children covered under the optional serious illness cover for children or education cover then Vitality will also pay an additional 10% of the sum assured up to a maximum of £25,000 per child covered. Vitality list 37 serious illnesses that this will apply to, however the majority of them are not the standard definition and require the inability to perform 4 out of 6 functional tests.
Notably, LV=, Old Mutual Wealth and Vitality do not charge extra for these benefits. Aviva on the other hand do apply an additional premium for Extra Care Cover.
Generally (although not exclusively in Vitality’s case) these additional payments are provided on conditions that present at older ages but would have a severe impact on the client’s standard of living. Below we have highlighted three such conditions and highlighted the incidence rates at different ages to show prevalence at different ages.
The incidence rate describes the number of people per 100,000 of the population that are diagnosed with a condition in a single year.
For each of these conditions the incidence rates for diagnosis at early ages is relatively low, however the clients’ standard of living will be dramatically affected. Vitality include all three for increased payments however they require the client to be unable to perform 4 of 6 functional tests for both Motor Neurone Disease and Parkinson’s Disease and to have a residual deficit measuring 4 or above on the modified rankin scale (a measurement of the degree of disability or dependence for neurological conditions) for stroke.
Aviva, LV= and Old Mutual Wealth only include Motor Neurone Disease and Parkinson’s Disease in their list of conditions they will apply an additional payment to, however clients only need to meet their standard definition of the condition.
Overall, in terms of the amounts paid AIG are strong for low sums assured with Guardian and Vitality strong for higher sums assured. In terms of additional payments where a client is diagnosed with certain conditions at a younger age all approaches have their merits. Vitality are good because they will increase payments at an older age whilst Aviva, LV= and Old Mutual Wealth have a lower age but only require the client to meet the standard definition. As most of the conditions listed generally affect older clients there will not be an abundance of additional payments made, however for those that it does affect it could provide a valuable extra financial lifeline as their condition will often be life limiting or at the very least extremely detrimental to their standard of living. Given that the increases are automatically included in the plan (as long as booster is selected for Vitality and with the exception of Aviva who do apply additional premiums) they seem good value.