How often is an adviser confronted by a client with an existing critical illness policy who is looking for advice on whether it should be retained or replaced?
It could be because a new mortgage is being arranged or maybe the client has read about improvements to CI plans.
There may be an automatic assumption amongst advisers, especially those new to the protection field, to assume that current plans are superior.
In a sense this is understandable because current plans cover many more conditions than older versions. Also, with the current phase of adding numerous partial payment conditions it could be taken for granted that current plans must be a better choice.
Using the CIExpert knowledge base it can be seen that the current Aviva plan offers 20 more conditions than the version available in March 2003, including five partial payments. The one distinct condition that the older plan includes is coronary angioplasty, which appears to be its only advantage.
However, when we look underneath the bonnet and assess the impact of the various condition wordings and then factor in the likely incidence of diagnosis the picture changes.
Both cancer and heart disease are conditions where the potential for diagnosis increases with age and if the client is a smoker then a diagnosis is far likelier.
As a case study I have used a male smoker aged 46 looking for a £120,000 policy. The CIExpert scores show the March 2003 Aviva plan as almost 8 per cent more effective and therefore more likely to result in a claim than the current version.
There are two reasons for this. The older plan includes angioplasty cover, a condition that was removed in November 2003. Even allowing for the requirement for a 70 per cent narrowing of two arteries and accepting that many recipients have previously suffered a heart attack there are still around 1,300 men in the 45-54 age-group who each year undergo this treatment.
The second reason relates to the cancer definition. Until April 2003 Aviva, in line with other providers, included early stage prostate cancer within the main cancer definition. Therefore a claim would have paid out the full £120,000 compared with today’s partial payment maximum of £20,000.
Additionally, with the old definition a claim was triggered on diagnosis whereas the current wording requires some form of treatment.
The impact of these two conditions supersedes that of today’s additional 20. The differences between a current and an older plan are magnified as the client grows older with a male smoker age 56 being 9 per cent better off with an older plan.
The differences vary enormously due to age, sex, smoker status and the level of sum assured. The average busy adviser cannot afford to delve into the myriad of changing wordings and apply relevant values which is why we established CIExpert.
Alan Lakey is founder of CI Expert