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By Jon Cudby | Published Sep 07, 2012

Terminal illness T&Cs under scrutiny

Terminal illness insurance policyholders could be left ineligible for cover because they are not dying quickly enough.

Under the wording of current standard terms and conditions used across the industry, the insured party must be given less than 12 months to live in order to qualify as a terminal illness case.

A payout would then be made at diagnosis. Typically, if life expectancy were longer than 12 months, the payout would be made on death as long as cover was still in place.

However, advances in medical science have prolonged life expectancy and increasingly people are living longer beyond diagnosis. As a result, it is more feasible that a policyholder with – say – 18 months of cover left could be given two years to live.

In that situation, the insured would find it impossible to renew cover on expiry and there would be no onus on the insurer to pay anything. Put bluntly, they would be better off dying sooner.

Andy Milburn, acting head of marketing at Ageas, foresees a situation where a dying policyholder could feel forced to forego life-preserving treatment in order to ensure their family gets a payout. “This is not what insurance should be for,” he said.

Milburn said Ageas has no plans to change its own wording unless he can achieve consensus among peers, but he is keen to start a debate.

He believes the industry should attempt to resolve the issue itself. “Insurers and intermediaries should be able to have a grown-up conversation and decide on the best course of action without the input of any regulator,” he said.

Mike Weedon, a partner at broker Life Cover for All, said he has never come across a case where a payout has been refused, but agreed that the issue is a “PR disaster waiting to happen” and needs to be addressed.

He said the “utopia” would be for all claims to pay out on diagnosis, adding, “it’s the diagnosis, not the treatment that we should be concerned with. The challenge is that reinsurers are working on statistical data, not goodwill.”

Weedon said a review of the small print could be timely. Q1 next year will bring a number of pricing changes with the gender directive and Solvency II, so any shift in policy terms could be bundled in too.

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