Over the last few years there have been a marked increase in the number of multi-benefit policies put in place by advisers. 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? In this article 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. The chart below highlights those that provide this option:

*Legal & General offer a life and seperate Critical Illness benefit via their contact centres. 

Those that do not 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 are likely to return costs based on Life Only AND Life with Accelerated Critical Illness.

In this scenario the client is actually being quoted more cover than that provided with life AND critical illness. It is crucial for advisers to understand what basis the policy they are recommending and to fully document and explain to the client why this is. 

The below scenarios are based on a single and joint life policy where there is a sum assured of £100,000 for life and £100,000 for critical illness (for life with accelerated critical illness the critical illness cover is equal to the life cover). 

Life assured qualifies for a full payment critical illness claim
Life assured dies or suffers a terminal illness

Single Life

Life with accelerated Critical Illness

£100,000 would be paid to the client and all cover ceases.
£100,000 is paid to the client (Terminal Illness) or their beneficiaries (death) and all cover ceases.

Single Life

Life AND Critical Illness

£100,000 would be paid to the client under the critical illness plan which ceases and the life cover remains intact.
£100,000 is paid to the client (Terminal Illness) or their beneficiaries (Death) from the life cover. For terminal illness claims an additional £100,000 will be paid under the critical illness plan. All cover ceases.

Single Life

Life Only AND Life with accelerated Critical Illness

£100,000 would be paid to the client under the life with accelerated critical illness plan which ceases with no critical illness cover remaining. The life only plan remains intact.
£100,000 is paid to the client or their beneficiaries under the life only plan and a further £100,000 is paid under the life with accelerated critical illness plan. £200,000 in total. All cover ceases.

Joint Life

Life with accelerated Critical Illness

£100,000 would be paid to the client and all cover ceases.
£100,000 is paid to the client (Terminal Illness) or their beneficiaries (death). All cover ceases.

Joint Life

Life AND Critical Illness

£100,000 would be paid to the clients under the critical illness plan which ceases and the life cover remains intact.
£100,000 is paid to the client (Terminal Illness) or their beneficiaries (Death). For terminal illness claims an additional £100,000 will be paid under the critical illness plan which would cease. If the claim is for death the critical illness remains intact for the surviving life assured.

Joint Life

Life Only AND Life with accelerated Critical Illness

£100,000 would be paid to the clients under the life with accelerated critical illness plan which ceases with no critical illness cover remaining for either life assured. The joint life only plan remains intact.
£100,000 is paid to the surviving life assured under the life only plan and a further £100,000 is paid under the life with accelerated critical illness plan. £200,000 in total with no cover left in place.

As such on a single life basis, if the life assured dies, more will be paid under the Life Only and Life with accelerated CI option as both policies will pay out. Where the plans are set up on a joint life basis there are potential drawbacks as the surviving life assured would lose all their life and critical illness cover. Depending on the clients situation and the reason for cover this may not be a problem as they are already in receipt of the payment from the life claim, however for some this might cause an issue, particularly if they themselves go on to suffer a critical illness.

In the scenario where Life AND Critical illness is taken out on a joint life basis and one of the lives assured dies, the critical illness cover for the surviving life assured and subsequently the premiums, remain in place and will not change. This effectively means the surviving life assured is paying a proportion of the premium for the deceased life. Were this to have been set up as two single life AND critical illness plans (i.e. dual life), the deceaseds critical illness policy would stop and the surviving life assured would only be paying for their own critical illness policy. In addition to this the surviving life assured’s life cover would be unaffected.

In any event it is crucial for advisers to be aware of what cover is being quoted when producing a portal comparison. 

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. Advisers should ensure that they are very clear about the type of cover being recommended and ensure that this is made explicitly clear to the client to avoid such situations with the ombudsman.

1 Comment

  1. jerry THOMPSON

    Good educational article , especially valuable to newer advisers in the industry , and maybe some of the older ones too. With litigation / ombudsman rulings it is vital that advisers keep abreast of changes to policies and make sure that the rationale is documented in any supporting literature to clients for the recommended plans

    Reply

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