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Tony Mudd: Protection pariah Aviva didn’t deserve the flak

The provider was under unfair pressure to drop critical illness cover from its relevant life policy

“There is many a slip twixt the cup and lip”, so goes the old proverb. Whether you favour the English version “don’t count your chickens before they hatch” or the version attributed to Greek anthology meaning “many bad things happen before a successful outcome”, I cannot help but relate it to the situation with Aviva’s relevant life policy with critical illness.

Let’s start at the beginning. In early 2016, Aviva launched a relevant life policy. As I said at the time, this would have gone largely unnoticed ordinarily. Just another entrant into an already crowded market place.

However, the Aviva contract had one important difference: the inclusion of a critical illness benefit – a benefit which, based on common interpretation of the legislation, had up until that point not been considered possible.

Aviva axes critical illness cover from disputed protection product

Given the considerable tax advantages of relevant life policies, by that time well understood by advisers, the launch went anything but unnoticed.

As with anything new, innovative and challenging of the accepted industry view, the response was mixed. Advisers’ reaction ranged from cautious curiosity to enthusiastic engagement. Aviva’s competitors, on the other hand, perhaps unsurprisingly, went from scepticism to undisguised denial.

For my part, I came down firmly on Aviva’s side. As I explained in a Money Marketing article at the time, critical illness was certainly capable of being a relevant benefit under legislation as it stood and, while there were some risks, there was scope to provide contracts offering real value.

But providers continued to cast doubt on the validity of critical illness in relevant life plans, and the creation of this uncertainty had the desired effect, with many advisers choosing not to take the risk with their clients.

Move forward to 12 March this year and Aviva announced it was replacing the original plan.

This was seized upon by its competitors as vindication of its previous position: that critical illness had not been a relevant benefit after all. The enthusiasm with which this message was communicated was more a case of misplaced triumphalism than anything that reflected the facts.

The original Aviva plan was indeed replaced but with a new design that HM Revenue & Customs had given its sanction to. While the optional illness cover in the new contract cannot be called critical illness, in my view this is just a technicality. The illness cover is now entitled “employee significant illness benefit”.

Tony Mudd: Why Aviva’s controversial new product raises the protection bar

Importantly, the trigger for the claim is that the insured must suffer from a condition so significant it creates a retirement event. When you examine the conditions included, however, it has most of those you would expect; certainly the major events, such as heart attack, stroke and cancer.

Just as importantly, Aviva had negotiated an agreement with HMRC that all pre-12 March Aviva relevant life plans with critical illness will be deemed legal and not subject to challenge. In other words, all the tax benefits of a relevant life plan with critical illness will apply to the original contract as it does in practice to the new version.

It is almost unprecedented for insurers to liaise with HMRC in the manner Aviva has in this case, and this has to be to its credit. As I said at the time of the original launch, congratulations should go to Aviva for both widening the scope of the market and for innovation.

Hopefully, with the tax incentives and cover available, this contract will go some way to helping advisers continue to reduce the protection gap in the UK.

Tony Mudd is the divisional director for development and technical consultancy at St. James’s Place


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  1. “When you examine the conditions included, however, it has most of those you would expect; certainly the major events, such as heart attack, stroke and cancer.”

    A policy that pays out if you get a heart attack, stroke or cancer *bad enough to make you retire* is not a critical illness policy. Many people have heart attacks or cancer and are not forced into retirement. A critical illness policy pays out if you get one of the illnesses on the list – simple as that. Once you add a condition that the policyholder can’t ever work again, it ceases to be a critical illness policy.

    Which means that the common consensus that critical illness cannot be included under a Relevant Life Policy is still correct.

    The fact that not many people took out Aviva’s critical illness RLP policies made it easier for HMRC to waive the tax penalty that in theory it had the right to apply. If critical illness was in fact permitted under RLP, Aviva would still be offering them.

    Having its RLP policyholders subject to HMRC tax penalties would have been a PR disaster for Aviva. Aviva is a massive company and UK employer. Like Starbucks and Vodafone, it knows who to talk to at HMRC and how to cut a deal.

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