I have heard that total permanent disability in critical-illness policies is under review. What does this term mean and what difference will it make to me as a policyholder?
Total permanent disability describes a situation where, through injury or illness, a person is left unable to do their own or any occupation they are suited to through their training, education or experience.
TPD is an inappropriate phrase because you do not have to be totally disabled to not be able to do your job. There is a clear mismatch, which means there is a problem with the number of claims that get turned down.
Up to 55 per cent of all TPD claims are refused and while that is a terrible figure, it is not the insurance companies that are being harsh.
I know of people who have claimed for a broken leg. While I may laugh at that, in reality, if it says in the policy that you can not perform your own occupation and the adviser has not explained it fully or the client has not understood it, you can see why the claim goes in.
Even though the claim is spurious, it will show up as a statistic for declined claims, to the detriment of everyone.
The Association Of British Insurers has decided to keep the name TPD, which is a missed opportunity. To term it permanent disability would be better in that people would find it easier to understand.
But it is not just the name. The definition also needs to be reformed. One of the biggest reasons for inaction in any area of life is if things look too complex. TPD is nothing if not complex. There are some policies, such as that from PruProtect, which cover up to 160 different conditions, some of which are the same medical condition but with a different level of severity.
We need to remove complexity without removing the good parts of these plans. We are still waiting to hear the details of how TPD will be defined but it is important that it is addressed in a sympathetic, sensible and non-confusing way. If the ABI comes up with some simplified proposals, it will help consumers’ understanding of the product.
And it is not just consumers, there must be a reasonable percentage of advisers who are put off by the complexity and who will not sell it. With the retail distribution review looming, simplicity is more important than ever. If we say to people, come to us, pay a fee and here is some complex stuff, customers are much less likely to engage with us.
Alan Lakey is a partner at Highclere Financial Services