Aviva RLP with Employee Significant Illness Cover
Aviva RLP with Employee Significant Illness Cover
Aviva has updated its Relevant Life Policy (RLP) product, dropping the existing critical illness cover option and replacing it with an Employee Significant Illness Cover option instead.
The move follows discussions with HMRC, among others.
The new cover pays a cash lump sum on death and on the following employee significant illnesses and conditions:
- Advanced cancer.
- Aplastic anaemia.
- Bacterial meningitis.
- Benign brain tumour.
- Benign spinal cord tumour.
- Brain injury due to anoxia/hypoxia.
- CJD.
- Devic’s disease.
- Encephalitis.
- Intensive care (ten days).
- Kidney failure.
- Liver failure.
- Major organ transplant.
- Motor neurone disease.
- Multiple sclerosis.
- Parkinson’s plus syndromes.
- Pneumonectomy.
- Psychosis and bipolar affective disorder
- Pulmonary arteria hypertension.
- Respiratory failure.
- Severe heart condition.
- Spinal Stroke
- Stroke.
- Systemic lupus erythematosus.
- Third degree burns (20% coverage).
- Traumatic brain injury.
- Total and permanent disability (two claims definitions – benefit ceases at age 70).
The customer must meet the definition, survive ten days and the condition must result in their retirement or anticipated retirement.
Comment: In early 2016, Aviva surprised the market by launching its relevant life policy with a critical illness cover option. Until then, the general view was that RLPs could offer life cover but that adding CI cover would result in losing tax relief on premiums. Aviva said it had looked carefully at the relevant legislation (the Income Tax (Earnings and Pensions) Act 2003, part 6, chapter 2 and Income Tax (Trading and Other Income) Act 2005) and you could offer CI cover too and that view was supported by counsel’s opinion.
Others disagreed. Some hinted Aviva’s interpretation was wrong or at least said they had no intention of offering a similar option. As a result, Aviva was the only major insurer to offer this option. More recently though, Aviva has had discussions with HMRC and others and this new option is the result. I’m not sure you could call it HMRC approved, but HMRC seems to be happy, and has also said it won’t attack existing policies, which is good news for customers. The relevant legal position is set out at https://www.aviva.co.uk/adviser/documents/view/al18012c.pdf.
The new option no longer has partial payments and it covers fewer conditions too. In fact, the conditions it covers are much more – as the name suggests – those of such seriousness that they are likely to stop someone working.
Some may see that as a backward step and, in a way, it is. However, others have always felt there was too much of a windfall element in CI cover and that having this simpler range of conditions covered actually makes more sense if judged from a purely needs point of view.
So, does the creation of an ‘employee significant illness’ descriptor take CI cover in a new direction? Potentially, yes. Maybe that pathway can be further refined and we can certainly now expect other RLP insurers to offer a ‘CI lite’ option too, although we suspect HMRC will resist pushing the option too far.
But what of customers? Well, they lose out by having narrower RLP CI cover than before and maybe Aviva has missed a trick here too. Ideally, customers would be able to buy an add-on complementary non-RLP policy to cover all those conditions this plan no longer covers (and maybe more too). It’s a bit complex and messy to offer that and maybe it wouldn’t sell too well, but it’s certainly possible (system restraints notwithstanding). But, given that CI cover should ideally cover all critical illnesses, it’s an option Aviva or maybe other insurers should certainly look at offering.
Plus points: HMRC approved CI lite cover for RLP policies; Addresses concerns expressed when the original version was launched; Offers CI lite cover with tax relief on premiums; A new route for all RLPs?
Not so plus points: Fewer conditions covered than before; Narrower cover than on a typical life CI policy; No partial payments; No option to add back or get additional CI cover though a standalone life policy alongside the RLP.
Website: http://www.aviva.co.uk.
Rating (max 10): Innovation: 8. Overall: 7.5. Silver
Tags: CI; Aviva