The latest announcement from iPipeline that multi-benefit business made up 23% of all new business written via SolutionBuilder in Q1 2019 comes as no surprise. All quotation portals now make it far easier to compare multi-benefit prices, but advisers need to be aware of exactly what cover they are providing clients. Do you know your Life with accelerated Critical Illness from your Life and Critical Illness? What is the difference between joint life and Dual life? This week we look at the differences in cover in terms of what the clients are covered for and which insurers offer what.
What at first seems relatively straight forward is quite a minefield. For instance, the quotes you request via your portal of choice may not strictly be the quotes you receive from insurers and care needs to be taken to ensure that like for like is compared.
Let’s start with the life and/or critical illness scenario. As an adviser you have two main options when it comes to recommending life cover and critical illness which are;
· Life with Accelerated Critical Illness (alternatively Life OR Critical Illness)
Under this option there is essentially one pot that the client can claim on and once this is paid the policy ends. This means that if the client claims for a critical illness condition that results in the full sum assured being paid the whole policy ceases and life cover is no longer available. If the client claims for an additional payment condition the sum assured would remain intact (Vitality are an exception here as a claim on a partial payment condition would reduce the sum assured).
· Life AND Critical illness
With this option the life and critical illness elements are essentially set up as separate plans. Therefore, if the client claims on the critical illness element, the life cover remains in force. If this is set up on a single life basis then the critical illness would clearly cease if a claim was made for the life cover first (unless the claim was for terminal illness). Where this is set up as a joint life plan if one life assured dies then a claim would be made on the life cover element and as such the remaining life assured would lose their life cover. As there had been no claim on the critical illness element this would remain in place.
Whilst quotation portals provide the option of obtaining illustrations for both life with accelerated critical illness or Life and Critical illness, the illustrations received from insurers may not always be on this basis as not all offer both options. Ultimately to offer a Life AND Critical Illness option the insurer needs to be able to offer critical illness on a stand-alone basis. The chart below highlights those that provide this option:
Whilst those not offering a stand-alone Critical Illness offering cannot provide a Life AND Critical Illness offering they will still return an illustration of costs if this option is selected within a quotation portal. In such circumstances these insurers will return a life AND Life with accelerated Critical Illness illustration.
It is crucial for advisers to understand what basis the policy they are recommending to their client is based on as there are very different connotations especially if the policies are joint life.
The below scenarios are based on a joint life policy cover £100,000 for life cover and £100,000 for critical illness cover.
Whilst there is no difference in the amount paid and remaining cover if a critical illness occurs first, where a life assured dies, what is paid and the cover remaining for the surviving life assured are quite different.
This also brings with it a question about separation options. In the scenario where Life AND Critical illness is taken out and one of the lives assured dies, the premiums for the critical illness plan still in place will not change. This effectively means the surviving life assured is paying a proportion of the premium for the deceased life. At present we do not believe that any insurer provides the provision within their terms to rebroke this to a single life plan either within their separation options or anywhere else in their terms and conditions. This may be something insurers offer Life AND Critical illness cover should consider.
In any event it is crucial for advisers to be aware of what cover is being quoted when producing a portal comparison. The table below highlights what illustrations insurers will return based on the options selected.
In recent times there have been examples of the ombudsman finding against advisers for over insuring their clients. In most cases the reason for upholding the claim is not because the client was over insured but because the adviser had not properly explained why they had over insured the client. As we have highlighted, what insurers return regarding Life AND critical illness and Life with Accelerated Critical Illness will be based on what they are able to offer. They will not however, return an illustration that results in the client having less cover. Sometimes it will result in the client having more cover as evidenced by Guardian. Advisers should ensure that they are very clear the type of cover being recommended and ensure that this is made explicitly clear to the client to avoid such situations with the ombudsman.