WHICH INCOME PROTECTION PROVIDERS OFFER THE BEST SUPPORT FOR TERMINALLY ILL CLIENTS?
When someone receives the devastating news that they do not have long to live, their emotional responses will vary. Feelings of shock and grief may be difficult for some people to comes to terms with and there is a risk that these feelings can turn into depression. Others may seem calm and matter of fact about it, wanting to live the rest of their lives as normally as they can, perhaps focusing on the things they would like to do while they are still able to. For some, the news may come as a relief, particularly if they have been living with extreme pain for a long time and their quality of life has been severely impacted by their condition over several years.
However a client deals with their terminal illness, the financial facts of life will probably not be uppermost in their thoughts as they make sense of what is happening to them and decide what to do in the time they have left. Anything that insurers can do to make the financial side of things less stressful will help advisers look after these clients during the difficult times ahead. In this article we look at the ways providers can help
Time is valuable commodity. Probably never more so should your client be unfortunate enough to be diagnosed with a terminal illness, so being paid out earlier than usual on an income protection plan can make a big difference in these exceptional circumstances. Although insurers’ definitions of a terminal illness can vary, it broadly refers to an incurable condition where medical professionals expect someone to live for no more than 12 months before succumbing to that condition. Cancer or heart disease that has reached an advanced stage are examples of conditions that can be terminal.
Insurers are clearly sensitive to the needs of terminally ill clients as they often make exceptions to their usual rules for people who have less than 12 months to live. For example, insurers usually apply a deferred period to income protection plans, which means clients must wait for a certain period before they receive a payout. This is the way that costs are managed, as the longer the deferred period, the cheaper the premiums will be.
As our chart shows, five insurers waive the deferred period if the client is given a prognosis of less than 12 months to live, meaning the client will receive their benefit early in these exceptional circumstances.
Insurers do, however, vary when it comes to the application of some of their other rules where clients are diagnosed with a terminal illness. To qualify for an early payout, most providers – three out of the five listed – do not require the client to meet the definition of incapacity as well as being given a prognosis of less than 12 months to live. These providers are Cirencester Friendly, Holloway Friendly and Royal London.
In contrast, the AIG and British Friendly plans do hold terminally ill clients to their usual requirements in meeting the definition of incapacity. This represents another hoop for clients to jump through to qualify for an early payout at a time when they don’t need the hassle. Complications could also arise where clients are still physically able to carry out the duties of their own occupation, despite being terminally ill. However, this may not be such a problem because it is perhaps easier for doctors to sign the client off work if they have been given less than 12 months to live.
Some clients will learn of their terminal illness while they are already receiving a payout from their income protection policy. In this situation, British Friendly and Cirencester Friendly will both pay the benefit the client would have received within the initial deferred period. However, insurers are under no obligation to do this, so the other three insurers in our chart above have chosen not to.
Income protection is a policy which usually pays out a percentage of someone’s salary as a monthly income if they become injured or too ill to work. However, where they have been given a prognosis of less than 12 months to live, that changes things for some insurers and they may be prepared to pay out a lump sum instead.
As our chart shows, three of the five insurers listed – AIG, British Friendly and Cirencester Friendly – will pay the benefit as a lump sum where someone is diagnosed with a terminal illness. This has the advantage of providing the client with immediate access to a larger sum of money than the monthly benefit they would otherwise receive from the policy.
Among the three insurers who do make lump sum payments, AIG provides the highest payout at the equivalent of 12 months’ benefit. British Friendly and Cirencester Friendly both provide half that amount, equivalent to six months’ benefit. However, both British Friendly and Cirencester Friendly will also pay the benefit as normal if the client also meets the definition of incapacity. So, if a client receives a lump sum equivalent to six months’ payment, they will then receive a normal monthly benefit for the remaining months that they survive.
AIG’s plan works in a different way. As the client receives 12 months’ benefit upfront, they do not qualify for another further monthly benefits until the initial 12-month period lapses. However, if the client survives longer than this, the usual monthly benefits will resume once the initial 12-month period has lapsed.
Overall, Cirencester Friendly appears the most accommodating for clients who have been diagnosed with a terminal illness. It does not require clients who have been diagnosed with a terminal condition to also meet its incapacity definition to qualify for an early payout. It also steps up when clients are already receiving benefit from their income protection plans when they are diagnosed with a terminal condition and is willing to pay a lump sum in addition to the usual monthly payouts.
Although the other insurers make some of these allowances for clients with a terminal illness in various combinations, Cirencester Friendly is the only insurer that ticks all the boxes.