In Focus: Protecting your client  

Why would anyone buy a stand-alone critical illness plan?

Alan Lakey & Kevin Carr

Increasingly there is debate regarding the merits of a stand-alone critical illness policy.

The vast majority of CI cover in the UK has typically been written on the ‘accelerated’ claim basis, which is where both life cover and CIC are included in the same policy, but only the first claim is paid. 

The price differential is small, in fact sometimes a life and CIC plan can even cost less than stand-alone CIC. So, you kind of get the life cover part for free (or almost free). Furthermore, while most deaths are preceded by a serious illness, not all are. 

The annual Swiss Re Term & Health Watch report shows that since 2010 stand-alone sales, expressed as a percentage of total CI sales, have risen from 5.77 per cent to 15.95 per cent.  

Additionally, the report confirms that stand-alone CIC sales jumped 31.3 per cent on the year, whereas accelerated plan sales fell by 8.9 per cent.

This increased appeal was further underlined when Zurich opted to introduce a stand-alone CI plan in January.

However, the question that needs asking is: why? Why would a consumer buy a stand-alone plan? Could it be advisers making use of the flexibility within menu plans? Could it be that the bulk of sales emanate from non-advised telesales operations, or could it be a fear of an ombudsman adjudication?

The quality of non-advised telesales operations is variable and having both been cold-called on numerous occasions we can attest to the potential for poor-quality outcomes.  

What of the ombudsman? It wasn’t that long ago that a complaint was upheld against a bank that had arranged a life and CIC plan for a 25-year-old single male. The Financial Ombudsman Service contended that the claimant had no need for life insurance. The bank countered that it did not offer a stand-alone CIC plan, with the result that the complaint was upheld but no compensation awarded.  

Maybe this has helped determine compliance officer protocols?

Perhaps the major determinant is the perceived added cost involved in an accelerated plan. When writing this article we compared the cost of including life cover within a CIC plan. The results may be surprising to advisers, and possibly the Fos. 

Firstly, AIG, Canada Life, Legal & General and LV offer the same premiums whether life insurance is included or not.  

With those insurers that do increase the cost the differential is often marginal. A non-smoking male aged 46 wanting a £100,000 decreasing plan over 23 years found Zurich requiring an additional 57p a month, Scottish Widows an extra 58p, and Vitality SIC an additional £1.72.  

Aviva, with an additional £2.60, and HSBC, which charged an extra £5.69, were revealed as the highest increases, whereas Guardian actually charged £6.73 a month less.

Insurers require CIC claimants to survive for a 10 or 14-day period before accepting a claim, meaning a heart attack victim who dies within a week results in a declined claim.