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When the payout is in a critical condition

If a client&#39s critical-illness cover policy will not pay out it spells bad

news for the IFA as well as the client.

When a client is left suddenly without cover because their circumstances

have changed, it can be a shock but when their policy will not pay out it

is nothing shortof a disaster.

The good news is that help is at hand from the ABI statement of best

practicefor critical-illness cover.

The ABI statement is about improv-ing clarity so there are no nasty

surprisesfor customers.

Some requirements ensure providers use a standard format for critical

cover in key features, use the ABI illness and exclusion definitions as a

minimum standard, disclose age limits in all definition headings, disclose

exclusions in key features, and disclose any requirement to report changes

of occupation and residence.

However, IFAs should still look out for features that can trip up

customers with potentially disastrous results.

In particular, they should be on the alert if the discovery that the

policy will not pay out comes after the illness and the customer was under

the impression that the illness he or she is suffering was covered. An

avoidable cause of this is where the definition of the illness provides

significantly less cover than is implied by its heading.

Take angioplasty, for example. Many providers only pay out for an

angioplasty on two or more arteries. If the heading simply states

angioplasty, most customers would assume that all angioplasties are


However, figures from the British Cardiovascular Intervention Society show

that over 80 per cent of all angioplasties are on a single artery, meaning

fewer than one in five will get the payout expected.

Other providers pay out for angioplasties on a single artery – that is,

all angioplasties – but limit the amount paid. Both of these are fine,

provided that the approach is made clear.

Another example is hidden age limits. This was highlighted in both OFT

health insurance reports with the example ofa policy covering Alzheimer&#39s

disease but only to a certain age. The age limit was buried in the wording

of the definitionso the heading implied more cover thanthe full definition


The ABI statement will go a long way towards solving this. Standardised

definitions will ensure when the customer sees the illness heading, they

can be sure the cover is at least equivalent to the standard. Age limits

will be disclosed in key features as part of the heading, so goodbye to

this potential disaster.

All too often, the small print is buried deep in the policy or worse,

spread over the document. If the customer is not aware of these exclusions,

they may find out only when their claim is turned down.

The statement requires all exclusions to be shown up front in key features

and requires the small print to be in one section of the policy.

Many IFAs are now looking at cover exclusions as well as the conditions

covered, when considering the most appropriate policy.

How many of us stay in the same job for life? If we change jobs, probably

the last thing on our mind is to tell our insurer. However, some policies

could leave the customer without cover when this happens.

Providers usually take one of three approaches to occupation changes.

The claim can be assessed on the occupation at the time of claim but the

customer does not need to report changes. The insurer accepts the risk of

occupation changes. No disasters here.

The claim can be assessed on the occupation disclosed at the outset,

regardless of later changes. Any cover based on occupation, for example,

total permanent disability, may not match the customer&#39s occupation when

they claim.

Another approach is when the provider requires notification of any change

of occupation, including a change with the same employer, and

re-underwrites the cover.

It is good practice here to remind thecustomer regularly but the approach

carries two risks. If the customer forgets to tell the insurer, their claim

could later be declined.

Also, if the new occupation carries a higher risk, for example, if the job

is more specialised, the customer may lose their cover for total permanent

disability and/or waiver. Alternatively, the premium could increase. Of

course, it is now too late to arrange the cover with another provider.

The statement will help to clarifythese points.

If the provider requires notification ofa change of occupation, they will

have todisclose this, together with potential con-sequences, in key

features under the head-ing, Your Commitment.

This should help customers understand the different nature of policies and

choose their plan accordingly.

Some policies have an inbuilt disaster just waiting to happen because they

do not allow cover to continue after the death orillness of one of the

lives assured.

This can happen where a couple has joint cover and one partner has a

critical illness or dies with cover ending on the first event.

Most customers would expect their critical-illness cover to continue. This

problem is particularly acute if the policy is written as a stand-alone

plan that ends on the first death.

As there is no benefit on death, the customer may not tell the insurer

only to find out later they have not been covered since their partner&#39s

death despite having paidthe premiums.

Most plans avoid this by writing stand-alone cover that continues after

the first death. Another solution is separate policies or even independent

benefits in one policy, which may increase the cost.

Customer attitudes are changing rapidly and it simply is not good enough

for products to trip customers up. The ABI statement of best practice

should spur providers to throw out small print and eliminate pitfalls. It

will reduce problems further through standardised definitions and clearer,

fairer, up-front disclosure in key features.

This should help ensure there are no nasty surprises throughout the life

ofthe policy and, when the customer needsthe plan the most, the claim does

not turn into a disaster.


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