C7 Critical Illness Cover

Association of British Insurers (ABI) minimum standards set out…

format for how CIC is described to buyers, with common generic terms and model for illnesses covered/excluded

CIC can be used for…

• paying off mortgage

• adapting the home

• purchasing fit for purpose car

• paying off major commitments

Standalone CIC consists of…

• no life cover

• guaranteed or reviewable rates

• limited term or whole of life

• higher premiums than just life cover

• mostly lump sum but some pay series of payments

Combined life and critical illness consists of…

• the benefit paid on death or earlier CIC (accelerated death benefit)

• end of policy after CIC payment so no life cover

After CIC payment, insurers can offer…

the option of buying back life cover after two years

For CIC with life cover…

a split trust should be used so CIC goes to policyholder and life cover paid to trustees

Features/options of CIC include…

• survival period of 14-30 days for standalone

• children’s cover with no underwriting as an extra

• index linked/guaranteed increases on life events

• life cover buy back for restricted cover and no underwriting

• waiver of premium

• joint polices split on divorce with no further underwriting

• if one partner makes claim, other can take out single policy without further underwriting

• total and permanent disability - insurer can choose definition from 4 (next slide)

• terminal illness as a rider, pays out if less than 12m to live unless in last 12-18m

For total and permanent disability the definitions can be out of:

the four ABI definitions

• own occupation

• suited occupation

• 3 work tasks

• 3 ADLs

Each office has own definitions, but main conditions covered by CIC include…

• Alzheimer’s disease

• Blindness

• Cancer

• Coma

• Coronary artery by-pass grafts

• Deafness

• Heart attack

• HIV (i.e., blood transfusion)

• Kidney failure

• Loss of speech

• Stroke

• Third degree burns

The onus to prove the claim is payable is on the…

policyholder

Common exclusions of CIC include…

• alcohol/drug abuse

• criminal acts

• hazardous sports

• intentional self-inflicted injury

• living abroad

• unreasonable failure to follow medical advice

Underwriting is based on…

Morbidity

Guaranteed or reviewable premiums have fresh underwriting or are reviewed every…

5 or 10 years

For claims, the life office and policyholder must…

life office - check illness is covered and disclosure

policyholder - prove claim

the act that applies to CIC claims is…

consumer insurance (disclosure and representations) act 2012

features of group CIC include…

• employer purchases

• reduced underwriting (but pre-existing is excluded)

• fixed benefit or multiple of salary

• taxable as BIK but lump sum tax free

• valuable benefit for employee

• benefit for employer as inexpensive but high value benefit for employees

Payment of CIC is…

• not a chargeable event

• not subject to income tax or CGT on the lump sum

Advantages of CIC are…

• lump sum on diagnosis

• paid to individual

• can be used however they wish

Disadvantages of CIC are…

• not cheap

• not guaranteed that the illness will be covered

• hard to get cover with pre-existing conditions or more expensive

ABI Statement of Best Practice for CIC provides…

greater clarity of definitions whilst ensuring policies paid out, supplemented by minimum standards for CI guide

New CIC developments mean premiums can be reduced if…

an exclusion for a condition has been imposed

Severity based cover covers…

more illnesses, but only pays out a proportion of the benefit