After 30 years, a protection provider finally removes a contentious sentence of small print from its term assurance policy writes Roger Edwards.
Legal and General's terminal illness clause no longer has an exclusion in the last 12 months.
Common sense has finally prevailed.
For these words, frequently discussed on Watchdog type TV programmes and in the pages of the Daily Mail, are one of the reasons the public firmly believe that protection providers will use small print to wriggle out of claims.
We first saw terminal illness benefits appear on protection products in the late 1980s.
A few high profile news stories of terminally ill people facing financial hardship because they couldn't claim on their life policies emerged.
A company called Life Benefit Resources appeared who would "buy" life policies from terminally ill people for 75% of the sum insured.
Of course, when the poor policyholder died shortly after, LBR would pocket the full sum assured.
The protection industry developed terminal illness benefits as a response to the LBR model.
As a marketing assistant involved in the promotion of one of the first TIs, I rather naively asked one of the actuaries why there had to be a 12-month exclusion at the end of the term.
"Well if a client buys a 25-year term assurance," the actuary explained. "And claimed for a terminal illness on the last day, then we'd be giving them 26 years of cover for the price of 25. So we have to exclude the last year."
I might have been naïve in the actuary's eyes, but even I could see how bad this would look when the inevitable declined claim came along.
In the early days of Bright Grey, we tried to move away from the 12-month exclusion.
All we managed was that their terminal illness had to run its course within the term of the policy. This was probably more confusing than the traditional exclusion.
After a time, the company reintroduced the 12-month exclusion, in part to make things clearer but also to release more margin in a competitive product.
And the Watchdogs and Daily Mail articles continued.
However, convincing a reason there is for a clause like this from an actuarial, profit, or margin point of view, it appears unfair to the public.
It adds to the weight of information out there that reinforces the consumer view that insurance companies don't want to pay claims. It's why they think we only pay 50% of protection claims when in reality we pay out in the high nineties.
Were the extra pennies of profit we've enjoyed over the last 30 years from the 12 month TI exclusion worth the negative publicity?
We should applaud Legal and General's move. But it will take a long time to change public perceptions.
And what about the big existing book of term assurance policies out there that still have the 12-month exclusion?
If we are faced with another 15-20 years of potential declined terminal illness claims in the last 12 months of the term, then L&G's move won't affect public perceptions for a long time yet.
I wonder whether we'll see a wholesale ditching of this clause from new and old policies or whether it'll just become a competitive talking point on new plans just to sway recommendations.
Roger Edwards is MD of Roger Edwards Marketing and marketing director of Protection Review.
Further reading
L&G enhances term and terminal illness (TIC) cover
