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Critical illness vs income protection: Which is easiest for advisers?

There is a common misconception that harsh underwriting makes income protection more difficult for advisers to place.

Income protection has always had a reputation for being difficult due to the strict view insurers take when underwriting the cover. Even now I still hear “harsh underwriting” as a reason advisers do not offer it, defaulting instead just to life and critical illness cover.

While this may have been an accurate view a decade ago, is it fair to say the same today? Let’s take a look at which is easiest to place for major medical conditions.

Strokes

According to The Stroke Association, a quarter of all strokes occur while someone is of working age. Among these, there will be a number requiring financial protection against serious illness or disability. The following table highlights the best case outcomes for critical illness and income protection.  

Stroke Critical illness Income protection
Ischaemic stroke Decline (unless linked to contraceptive pill) Normally an exclusion
Haemorrhagic stroke Exclusion Exclusion or premium loading
Transient ischemic attack Exclusion Exclusion or premium loading

The majority of these critical illness applications will result in a decline, as there are very strict criteria on acceptance. Income protection is more likely to result in an offer, albeit this may be with an increased deferment period and will still face strict scrutiny at the underwriting stage.

Cancer

 There are currently over 200 types of cancer, according to Cancer Research UK. Due to the differences of these cancers, the following table only details a few types. With some forms of cancer, it is possible to obtain both critical illness cover and income protection. This will heavily depend of the type of cancer, the staging/grading and the time since last major treatment.

Cancer Critical illness Income protection
Breast cancer Breast and ovarian cancer exclusion Standard, exclusion or premium loading
Skin cancer Skin cancer exclusion Standard, exclusion or premium loading
Hodgkin’s lymphoma Full cancer exclusion Standard, exclusion or premium loading

In most circumstances, income protection becomes available before critical illness cover for people who have had cancer. There are providers who will exclude cancer but many opt for premium increases instead and, unlike critical illness cover, it is possible to obtain standard terms with some types.

Diabetes

 With one in every 16 people in the UK estimated to have diabetes, this is something many advisers will come across. I have often said income protection has more availability for people with diabetes than critical illness, and recent developments have made this even more so.

Diabetes Critical illness Income protection
Type 1 Not available Exclusion or premium loading (less likely)
Type 2 Premium loading Exclusion or premium loading

Critical illness cover for type 2 diabetics is difficult to arrange and the majority are not eligible for it. Even the relevant insurers openly say that most applicants are still declined.

The advantage with income protection is that cover can be available for people with type 1 or type 2 diabetes. Most type 1 diabetics will see cover come with an exclusion, which is preferable to a blanket declinature with critical illness cover. Type 2, on the other hand, may have the choice between an exclusion or premium increase, based on different insurers stances.

Other areas to consider

There are other areas beyond major medical conditions where income protection can result in more favourable terms too. For examples, clients who take part in dangerous sports such as diving, motor sports or private aviation should be able to get income protection without an exclusion. This is much less likely with critical illness cover. Likewise, a recreational drug user is more likely to get income protection than critical illness.

That said, it does not always come up top trumps. Conditions like arthritis and hypermobility syndrome present a much higher challenge for income protection. It is easier to get critical illness cover for clients with high BMIs, musculoskeletal conditions and more serious mental illnesses like bipolar disorder. It is also worth noting that a combination of back pain and any mental illness can result in income protection being declined by most providers.

But income protection should never be disregarded just because critical illness cover is not available. You may be surprised at what can be offered. Add in the flexibility of reduced claim periods and multiple deferment periods and you should find something to fit the budget of most clients.

Alan Knowles is director of Cura. Follow them on twitter @Kathryn_Cura & @AlanK_Cura

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. What does it matter about underwriting? These two products are complementary and should be advised as such. They serve different purposes.
    If underwriting is problematic, again so what? At least you know what the options are and can then have a meaningful conversation with the client. Too many people cover their homes for CI but cannot afford to live in it if sick long term. Of course, underwriting problems may mean no commission…..
    It should always be what is best for the client and not easier for the adviser.

    • Sam as I said to Harry below, the title of this was a poor choice by MM and didn’t set the tone I intended. Of course it’s about what is best for the client… but if a client is told he/she cannot have IP because they’ve had cancer or diabetes (as I hear frequently) how is this what’s best for them?

      Yes, the plans are complementary but my point is that many advisers still use harsh underwriting as a reason not to write IP, but in reality there is more availability of the cover than CIC (and the same excuse isn’t given for not writing CIC).

  2. “Easiest for advisers”

    “You cannot be serious”

    Surely you mean – what is best for customers?

    • Harry, the point Alan is making is that the perceived complexity of IP puts off many advisers. Like it or not many eschew IP and CI because they see it as a maze of imponderables.

      As Sam says, these plans are generally complementary although not everybody is able to effect IP whereas, subject to health, everybody is and should consider CI.

      • Alan

        What a pathetic reflection of the intellectual capacity of those advisers.

        I always thought the best IP was to ensure that the partner (spouse) also had a good job! Then both could be covered by Life & CI.

        • Harry I appreciate your points but what happens if the spouse gets sick too? The plans are complimentary but the fact still remains that IP is massively undersold (5x more CI is sold).

          And yes everything is what’s best for the client but my point is that so many advisers still claim that IP is too hard to write based on underwriting complexities. In reality though it’s not underwritten harsher than CI and there are more options available if advisers fully understand the plans.

          FYI The title of the article was chosen by MM. Not my choice and didn’t exactly set the tone I intended.

  3. Julian Stevens 2nd March 2018 at 1:55 pm

    Unless it results in TPD, CIC won’t pay out in the event of long term loss of earnings capacity on account of an accident. CIC and Income Protection are two different types of cover.

    And stringent underwriting IS a problem with Income Protection. It’s not a myth or misconception. On a case I put forward some years ago, the applicant had experienced some minor back trouble some years earlier due to having fallen off a ladder in his garden. The acceptance terms were that they wouldn’t pay out unless he was totally unable to follow ANY occupation whatsoever. For a claim to be admitted, he would have had to have been rendered quadriplegic, blind, deaf and dumb, in which state he’d be beyond caring anyway. We told the insurer to get lost.

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