Making the right choice

The most recent critical illness (CI) sales statistics reinforce the view that CI cover is only seen as an instrument to protect debts, such as a mortgage. The danger of this is that the client's real needs can be overlooked, particularly their needs in the longer term. Insurers fall over themselves to trim rates, which can often mean cutting benefits, in order to look competitive.

How often have you heard it said: 'Company XYZ does not look competitive on the CTP?' As a result, the best product for the client may not even be considered as an option.

In this allegedly rate-driven world, we seem to have forgotten what CI cover was designed to do.

Imagine how it feels when the doctor confirms you have cancer? At that exact moment in time, your world is changed forever. Your hopes, dreams and plans all fade into insignificance. What used to be important has become trivial. Everyone would give everything if only they could return to how they were, just a couple of moments ago.

But life is not a tape recorder that can rewound. Neither can we record over the parts we did not like much. In addition to the courage needed at that time, we need financial security.

Life in all its glorious unpredictability tells us just one thing ' that nobody knows when ill health will strike. But we still continue in pursuit of a temporary or term contract that is adequate over a fixed period of time. At a price.

We know a term contract is often favoured for its lower rates. As the Chartered Insurance Institute says: 'Low premiums stem from the fact that the life office will only pay out on a percentage of the term policies it issues because many lives assured will survive the term of the policy'.

Problems ahead

But what happens if someone wishes to renew a term policy? Those whose health has declined over the initial term may find that the cost of cover has risen, making cover unaffordable, or worse still, their health means they are uninsurable.

There are critical illness policies which have been around for a considerable time which offer guaranteed insurability for a further term. However, there is no guarantee as to what cover will be provided in the new term.

Medical science moves on and new diseases crawl out of the woodwork. Unless a life office can guarantee that the new term will not be disadvantaged through new medicine, new surgical techniques, and new diseases, which they can exclude, there is no real guarantee.

Evidence of this already exists today, with some life offices choosing not to cover more recent techniques, such as keyhole surgery. Others exclude heart attacks if there has been no 'typical evidence of chest pain.' With 20% of heart attack sufferers not experiencing typical chest pain, it is time we started looking beyond price.

There are many different definitions relating to angioplasty procedures, which means a high proportion of clients undergoing this type of heart surgery, will not be eligible for claim.

Grand Prix commentator Murray Walker, once said: 'The car in front is unique, except for the one behind which is identical.' The common view of critical illness cover is similar to Murray's view of cars, in that with the exception of one or two minor details, there is not much between policies.

We hear comments such as company Z offers better cover, as they offer more free child cover, or company Y covers an extra illness, which is unique, and therefore by some spurious definition, makes the cover better, but not that different.

The real key to good or indifferent cover, lies simply within the illness definitions.

There has to be confidence that the policy will pay out, and that it is flexible enough to change, as life changes. This is what gives the car in front its lead.

The Office of Fair Trading has criticised life offices for not making it clear that once a successful claim has been made the policy is terminated. However, this criticism can be avoided by offering the facility to 'buyback' further critical illness cover after the event, regardless of their state of health. CI 'buyback' cover was first introduced some two years ago, and now accounts for a high proportion of all sales. In recent times other insurers have introduced 'life cover buyback' and 'critical illness buyback', acknowledging there is a real need for insurance to continue once a client has claimed.

Buying with care

Caution should be exercised, however, in the selection of the buyback options. Ensure that when it is offered, it clearly relates to the buyback needed, whether for critical illness or life cover.

More importantly, at the time when the client wishes to exercise the option to buyback, will the premiums be affordable, or will it exclude them from having the cover they most need due to cost?

Some companies offer critical illness buyback at a nominal premium, where others charge full cost at the time the option is exercised. The question is: will the client have the means to buyback the cover they would like most?

Once the mortgage has been paid off and the client retires, the risk of costly ill health does not miraculously cease. Unfortunately, the risk of ill health increases as we age, with one in four of us expected to need some form of long term nursing care.

Long term care (LTC) is a very big issue and is not going to fade away; neither is good care going to be given freely under any Government.

Agequake

Around the year 2020, when clients in their 40s retire ' the 'agequake' will hit nine on the Richter scale. 2020 is the time when the full costs of healthcare will hit us. This is the time when your clients will discover if their retirement plans were effective.

How many of them will have spent a lifetime accumulating wealth and some paying into a pension simply to see it disappear under these costs?

When speaking with your clients in their 30s, 40s and 50s, remember to tell them that in retirement they have earned the right to spend their money, their way.

The right CI cover can protect your client's needs throughout the term of their working life and beyond.

A good CI policy should continue throughout life. It can adapt to become long term care cover, and with sufficient units accumulating in the plan, can end up costing the client nothing. The consequences of the agequake mean, the fault lines within the term contract should start to appear. The main one being that the cover can come to an abrupt end.

New legislation, regulation, genetics, science and new diseases are making big changes to our futures. The biggest change of all being the time when the UK population race will no longer be a young one.

The agequake has already started to shake business, finance and health. Identify the fault lines now, or deal with the aftershocks later. The choice is yours.