For 20 years I have avoided using claim criteria such as activities of daily living or similar terms for income protection. My reasoning is simple: the level of disability needed to meet the claim requirements is substantial and far beyond what I believe to be reasonable.
This problem also rears its head when considering total and permanent disability within critical illness plans. Is it worthwhile including TPD if only activity-based cover is available?
This issue was recently highlighted within a Financial Ombudsman Service final decision notice. A lady suffered serious injuries in an accident and claimed she was paraplegic. Because evidence suggested she had not lost all feeling in her legs the insurer declined her claim under the paralysis heading.
It also declined her claim under TPD arguing that, with the use of various aids, she could perform the relevant activities of daily living that determined success of her claim.
The ombudsman determination provides a number of lessons.
Firstly, it suggested that while the policy document stated “paralysis of two or more limbs is sometimes referred to as paraplegia… I do not interpret the policy terms to mean paraplegia is always covered”.
Secondly, it accepted that while she was seriously injured she could perform the various tasks with supportive aids.
Two points emanate from this decision. Firstly, the FOS interpretation of policy wordings leaves much to be desired. This is not the first time they have sought to meaning and therefore the claims-paying potential of CIC wordings. Secondly, it highlights how difficult it is to successfully claim for any activity-based TPD wording.
Another ombudsman decision highlighting the pitfalls of critical illness design involved a lady diagnosed with a rare neurological condition not dissimilar to multiple sclerosis. As the condition was not actually multiple sclerosis the insurer was able to decline the claim.
The ombudsman agreed that, as the policy expressly stated a “definite diagnosis of multiple sclerosis”, the claim should fail. The plan also contained TPD on an activity-basis but the ombudsman commented: “Mrs X will need regular treatment for the rest of her life but I have seen nothing to show she is unable to carry out the tasks of daily life needed to maintain a basic independent existence”.
These two cases highlight issues advisers would be well advised to consider when recommending plans for their clients.
Is TPD a worthwhile option if “own occupation” cover is unavailable? Being unable to perform three of six everyday tasks requires an extremely high degree of permanent deficit few standalone conditions are likely to meet.
Clients need to be aware their policy cover is explicit and finite and merely having a bad outcome is insufficient. Plan design is such that generally it is only named conditions that trigger claims. Having a rare neurological condition which mirrors the outcome of Parkinson’s Disease or Multiple Sclerosis is not enough.
Until such time as the industry designs CIC plans based on the outcome then there will continue to be declined claims and understandable policyholder outrage.
Alan Lakey is director of CIExpert