Terminal illness benefits are delivering poor outcomes and consumer harm in some instances as issues persist with claims not being paid, advisers have told Health & Protection.
There is also confusion around what terminal illness benefits actually mean for customers and insurers have been urged to improve the situation.
Health & Protection spoke to several industry representatives ahead of the Financial Conduct Authority (FCA) publishing its multi-firm review into terminal illness benefits that raised several key concerns.
Terminal illness benefit is typically included on life insurance policies and can be paid out before the policyholder has died once they have a medical diagnosis that the condition will be fatal.
However, the conditions for pay out can vary between insurers and policies and may mean someone does not qualify initially and may end up making multiple claims to eventually be successful.
Incredibly valuable when it pays out
Speaking to Health & Protection, Alan Knowles, co-managing director at Cura Financial Services (pictured), said while the benefit can be “incredibly valuable” when it pay outs, the issue is when it does not pay out.
“Most terminal illness benefits require the customer to be diagnosed with less than 12 months remaining to live,” Knowles explained.
“With advancements in medical science, it’s becoming harder for consultants to make such a statement.
“So we are seeing more terminal illness claims declined or scrutinised because the client may have say 24 or 36 months to live, or consultants are just unwilling to say.”
Knowles added it was very hard to tell someone that they were not ‘terminal’ enough, when they were facing terminal diagnosis.
“I would personally like insurers to consider something like the Guardian approach where the benefit pays on Stage 4 incurable cancer or diagnosis of something like Parkinson‘s Plus symptoms,” he continued.
“My argument is that such a benefit could even be chargeable and I think many clients would prefer to pay for a good benefit rather than to receive a free benefit which is proving increasingly difficult to claim on.”
Poor outcomes and consumer harm
Andrew Wilkinson, director at Moneysworth, echoed those concerns and raised his own in the context of the Consumer Duty.
He warned that some terminal illness claims were clearly resulting in poor outcomes and consumer harm, meaning the onus was on life insurers to improve outcomes.
“I would expect this to form part of the discussions that the FCA holds with product providers,” Wilkinson continued.
“If insurers find it difficult to agree steps to improve matters then perhaps the FCA might investigate available steps or options for developing good working practice, or working practice intended to avoid unnecessary consumer harms, in this area. Hopefully it will.”
Change of name needed
Providing her own personal view, Jennifer Gilchrist, proposition specialist at Royal London, told Health & Protection there was confusion around what terminal illness benefit actually means and insurers needed to do more to prevent confusion.
“This is just my personal view, I think as a first step we should change the name of it,” Gilchrist continued.
“Terminal illness within a policy has a definition. In some of Royal London’s plans it’s less than 12 months to live.
“And I think where people get mixed up is you might have a doctor or some other person having a different definition of what their terminal illness is.
“I think there is a bit of a confusion there between a policy definition and what terminal illness means to different people.
“Therefore people tend to think they should get paid now and then they go and get a declined claim.
“But what we are seeing now is that even though we decline claims, you’ll find that invariably it will come through again, potentially later on as another terminal illness claim because the 12 month requirement has been reached, or actually the person has subsequently died and therefore it’s a death claim.
“It could be that the decline is happening and it’s just declining it for that period of time and it will eventually be paid, unless obviously the policy term ends before then.
“In a way it’s almost like people misunderstand what it is – therefore from a customer understanding perspective, it would be good if we could communicate the benefit in a better way.”