Life Insurance  

Terminal illness policies should pay out on diagnosis

Terminal illness policies should pay out on diagnosis
 Credit: via Dreamstime

The gap between a terminal illness claimant’s expectations and the reality of a claim is “not good” for the industry, according to Guardian.

It comes as an October/November survey of 553 advisers by the provider found the majority (92 per cent) thought terminal illness benefits should pay out on a diagnosis of incurable stage 4 cancer, rather than on life expectancy.

The survey also found that two-thirds (65 per cent) of advisers would feel uncomfortable, or very uncomfortable, telling a terminally ill client that they could not claim until their doctor had confirmed their life expectancy was less than 12 months.

Katya MacLean, CEO at Guardian, said: “It’s difficult for the medical profession to predict life expectancy with certainty. This causes an obvious problem if we’re using life expectancy as the criteria for a terminal illness payout.

“What it means in practice is some terminal illness claims are declined, at least initially, as the insurer has to say the claimant is ‘not yet ill enough to claim’ despite their terminal diagnosis.”

Ms MacLean added: “This discrepancy between the claimant’s expectations and the reality of claim is not good for the industry. This research shows advisers feel the same.”

Standard industry practice is for life insurance policies with a terminal illness definition to pay out when they have evidence that the claimant has less than 12 months to live, according to Guardian.

Of the advisers surveyed with clients who had made a terminal illness claim, 13 per cent said it had been declined because they did not yet have evidence that the client had less than 12 months to live.

The research also found that eight in 10 advisers (79 per cent) said their clients would be willing to pay more for a policy with a terminal illness definition that paid out on diagnosis, rather than life expectancy, with 80 per cent saying they thought their clients would pay up to 10 per cent more.

Matthew Chapman, commercial director at Plus Financial Group, commented: "I’m not surprised to see that 92 per cent of advisers think that terminal illness should pay out on diagnosis of stage 4 incurable cancer. As a protection broker you just want to be confident that the benefit you are recommending will actually deliver a positive outcome for your customer."

Mr Chapman also said: "Beyond the poor customer outcome and potential reputational damage to the adviser, a declined terminal illness claim will destroy consumer confidence in protection insurances and negatively skew claims statistics."

chloe.cheung@ft.com

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