In recent months I've heard discussions about whether or not insurers should scrap this benefit, which is typically included on most life insurance policies, writes Kevin Carr.
It exists, at least in part, because without it families are occasionally left in a very unpleasant situation.
A policyholder might be dying - and expected to die soon, but without this benefit no payment would be made until they literally kick the bucket.
In this example families might be desperate for the money but at the same time not wishing the worst to happen.
It's not a nice predicament to be in and Terminal Illness Benefit exists to remove such situations. If insurers know you've bought a long term policy and they know you're definitely going to die soon, they just pay out sooner. It's the right thing to do and it represents a high proportion of life cover claims.
It also avoids alternative situations arising, which are more common around the world, where term life insurance policies acquire a value (because the insured life is about to peg it) and thus are sold for a lesser amount because people need the money urgently.
So what's the problem?
There has been some negative media coverage about declined claims. Or to put it another way claims that haven't yet been paid.
The issues are based around the definition of being terminally ill along with the common exclusion that it cannot be claimed upon in the last year or so of the policy life.
This exclusion is perhaps understandable because if you bought a 25 year life policy and are diagnosed with less than a year to live in the final month of that policy should it pay out?
Maybe not. Maybe you should've bought a 26yr policy, which would've cost a bit more.
So what are the options on the table?
1. Scrap the benefit completely? As an industry we are likely to get just as much negative press coverage from the situation described above and so getting rid of it on the assumption that it will improve press coverage is surely hopeful at best.
I presume the benefit would only be dropped from new policies (and not retrospectively) which leaves millions of existing policies unchanged and so if there was any positive impact on press coverage it is unlikely to happen for many years, if not decades.
Besides, what about all the claims that would've been paid early? All those families whose situations would've been improved? All those ‘Why don't you do this anymore?' press calls.
2. Keep it and do nothing? That's probably better than option 1 - but there are genuine issues that need addressing.
3. Let's make some changes - and communicate them properly? How about we scrap the exclusion (as some insurers already do) and give it a revamp?
Emma Thomson at LifeSearch agrees that reforming the benefit is surely better than scrapping it completely: "I'd recommend changing the name to something like ‘Advance Payment' rather than terminal illness because obviously someone can be terminally ill but have longer than 12 months to live which can cause confusion."
4. Maybe a solution is that everyone should have a base level of Whole of Life cover? The question is driven by needs - how much is needed and at what point in time.
On a long enough timescale we are all terminally ill. Although the state generally uses a life expectancy of six months or less, medical science is always improving and it is becoming ever more difficult to predict how long somebody may or may not live.
And in a modern society driven by blame culture who wants the responsibility for being wrong.
However, might the bigger picture perhaps be that the industry is over reacting to recent media attention? Media attention that has perhaps could've been better managed at the time.
The media coverage of declined Critical Illness claims a decade ago was considerably worse but did anyone want to completely scrap CI cover?
If the market is at fault with Terminal Illness Benefit, does any fault lie not so much the benefit itself but how the industry manages itself with the media - and how well we communicate with our customers?
Better communications, annual statements, and ongoing reviews, proper training would all help.
But in creating something good - a benefit that pays out early to meet genuine customer needs, the industry has perhaps unwittingly also created a grey area that just needs a little fixing, rather than confining to its death bed.
Kevin Carr is chief executive of The Protection Review and managing director of Carr Consulting & Communications
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