It is worth the time and effort to explain the value of a product to the buyer, writes Alan Lakey.
We live in a world where value is frequently confused with cost. The cost of a product is easily identified, but the value may be far harder to interpret.
So it is with critical illness insurance: the companies moving the most product tend to be those that practice keen pricing. For the lazy adviser, or those who find it difficult to explain value to their clients, the default option has been to point to a list of premiums and suggest the cheapest.
This presents many problems for the unwary, not least that online marketers can usually offer cheaper premiums because they offer no advice, just a purchasing conduit for consumers.
Those selling on cost will find that their clients are susceptible to competitor firms offering cheaper premiums and, more to the point, if the product isn’t valued by the purchaser, it is far more likely to be cancelled.
Advisers do exactly that: advising consumers as to the best value within their affordability range. Table 1 (below) shows the premiums and CIExpert scores for the top ten providers based on a male non-smoker age 35 effecting a £300,000 25-year level term policy (as at 22 April 2014). The decision by adviser and client ought to be one based on value and quality, as opposed to price.
Premium is but one component of the value calculation. A claims payment record, the quality of the condition wordings and other aspects such as name awareness, administration and application processing will all combine to determine a decision.
What if the client is focused on quality and appreciates the value of additional payment conditions such as early-stage prostate cancer, carcinoma in situ of the breast and children’s cover? One route worth exploring is to segment the cover into three different plans that provides numerous advantages albeit at a slightly higher cost.
In the following example (table 2 below), I am using Ageas Protect, Friends Life and Skandia and comparing it with a £300,000 plan with Friends Life.
The use of three high-quality £100,000 policies has increased the monthly outlay by about £7. However, it has provided the policyholder with the many advantages shown in Table 3 below. Children’s cover is responsible for about 4% of all claims, placing it fifth behind cancer, heart attack, stroke and multiple sclerosis.
So being able to triple the payout is not insignificant. The same goes for with coronary angioplasty, where more than 90,000 operations are carried out annually.
In addition, the numbers of conditions covered will increase, because no two providers plans include identical conditions.
Ageas Protect offers type 1 diabetes cover from age 18, as well as carotid artery stenosis as additional payments and multiple system atrophy as a full payment.
Friends Life includes diabetes after age 40 and lobectomy as full payment conditions with non-malignant pituitary adenoma as an additional condition. Skandia offers full payment for pneumonectomy and additional payments for accidental hospitalisation, carcinoma in situ of the oesophagus and third-degree burns covering 5%-19% of the body.
Rather than follow the knee-jerk mechanism of arranging a single plan for a large sum assured, with the underwriting grief that this sometimes entails, splitting the cover into segments with high-quality plans can provide a far wider range of cover and expand the likelihood of a payment.
Alan Lakey is director of CIExpert Ltd
|Provider||Monthly premium||CIExpert Score|
|Legal & General||91.93||8,136|
|Provider||Monthly premium £300,000||Monthly premium £100,000||Three £100,000 policies|
|Legal & General||91.93||32.88|
|Provider||Once policy for £300,000||Three policiees each for £100,000|
|Early-stage prostate cancer||£25,000||£75,000|
|Carcinoma in situ of the bladder||£12,500||£37,500|
|Testicular carcinoma in situ||Nil||£37,500|
|Carcinoma in situ of the oesophagus||Nil||£25,000|
|Carotid artery stenosis||Nil||£25,000|
|Cerebral arteriovenous malformation||£12,500||£50,000|
|Crohn’s disease (single resection)||£12,500||£37,500|