Ian Sawyer, managing director of Assured Futures, puts forward some controversial views on the relevance of critical illness cover compared to income protection.
I’m not a lone voice on this. It’s an opinion shared pretty much unanimously with my colleagues and many peers.
In my view, Critical Illness (CI) cover should be marginalised or even removed as a product because it gets in the way of Income Protection (IP), which is a far more superior product in terms of suitability and customer needs.
Yet all too often IP takes a back seat, especially in the mortgage industry.
If the IP market is ever going to achieve the widespread and sustainable growth it deserves, we need a radical rethink about both the relevance of CI and the way in which IP is structured, positioned and sold.
I sometimes think the industry is a little bit obsessed with CI – and the ever-changing list of illnesses and definitions which are becoming mind-boggling.
Has it become a victim of its own success; and is it time to move on?
AIG’s Key 3 is well intended and designed to help simplify the product. But in our view, it can also have the opposite impact; because unless you only sell that product it is just another version of CI for advisers to describe to customers on top of everything else.
Likewise, Vitality’s Serious Illness Cover is an excellent concept, but the paperwork is vast and it has created too much unnecessary complexity.
Something is typically better than nothing, but how much confusion might arise at claim stage about how much is paid?
Likewise, we should remember that many people don’t understand the financial implications of ill health, and some would consider blowing a lump sum – even a small lump sum – given half the chance.
Whereas an income through an IP policy removes both the confusion and the temptation.
I heard a statistic recently; 72% of all CI payments go towards replacing lost income. I suspect it’s actually a lot higher than this because in reality people rarely ‘need’ a lump sum.
Everyone likes the idea of a lump sum but how many people will use it to adapt their home or spend it on the medical care they need? The figures show it mainly goes towards loss of earnings.
We have a mortgage advice industry that is fixated on selling the wrong product.
All mortgage payment protection should be based on maintaining the mortgage.
I am bemused why IP providers don’t start from the default position of Life with IP rather than Life with CI.
If a Life & IP hybrid product were more readily available and quotable by advisers, there’s a chance that the right product might be sold more often.
Menu based products have been with us for decades and they effectively allow Life & IP as separate benefits, but this hasn’t helped mortgage advisers.
To me, this suggests that the comparison services are not wide and/or user-friendly enough and the product suite does not meet the need.
It is great to see British friendly adding death benefit on their IP cover – but the industry needs to go a long way further and build proper Life & IP products to rival Life & CI.