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March 2022 Zurich: CI

Zurich has launched a standalone critical illness (CI) cover option for customers who do not want a CI product combined with life insurance. The insurer has also widened its Total Permanent Disability (TPD) definition, now offers standard rates for customers with some mental health conditions and has improved the wording around mental health conditions on its applications.

On the new plan, both core and select levels of critical illness cover are available, providing different breadths of cover, with Select having more specified conditions. In effect, the new option allows customers to choose whether to have life cover or not, with benefits being broadly the same otherwise.

The TPD benefit has been enhanced by adding a work tasks definition. If Zurich is unable to issue terms for the own occupation definition, customers will now automatically be offered the work tasks definition instead.

TPD pays the sum insured if a customer, through illness or injury, is permanently unable to carry out three out of six specified work tasks. The six are: walking; climbing stairs; lifting an object; bending; getting in and out of a car, and writing.

Age limits for TPD have been increased on application from 54 to 65, and customers can claim until their 71st birthday (up from age 60).

In a raft of changes, Zurich now also enables trusts to be fully completed online – removing the need for signatures and physical copies of the trust, so speeding up the process. So, if all information is to hand, a trust can be completed in one session, Zurich says. Greater clarity has also been given on how many trustees should be added to the trust.

Comment: Last year, some 83,173 standalone critical illness policies were sold in the UK, according to Swiss Re, which was up by over 30% compared to the 63,347 plans sold in 2019. Indeed, until recently, standalone CI was very much the forgotten part of the CI market.

It wasn’t always so though and go back to 1996 and over 100,000 standalone CI plans were sold.

The case for standalone CI is that it can be a good choice if a customer already has separate life insurance in place and needs no more life cover or, if they have no dependents or a mortgage to consider, but just want to ensure they themselves are supported if they become seriously ill.

There are also some unusual situations where life cover may be rated or excluded where CI wouldn’t.

But overall, there’s a debate about whether standalone CI is ever a good choice.

Part of that is because bizarrely, standalone CI can actually be more expensive than CI with life cover. That’s partly to do with selection issues (broadly, if you don’t want life cover, that might suggest it’s because you think you’re more likely to suffer a critical illness). There are issues around the survival period too – it seems unfair to not pay any of the sum insured if someone dies one day before the survival period ends but the full sum insured if they die a couple of days later. There are some who would go as far as banning all standalone CI cover because of these very practical concerns. Personally I think you can justify standalone CI in certain circumstances – and our review mark reflects that - but even within the Protection Review virtual office we hold a range of views and concerns. And how will the new Consumer Duty affect things?

Do let us know what you think.

Regardless of that, Zurich has chosen to enter the market by largely mirroring its successful regular CI plan, which offers a wide range of options, including two breadths of cover. Though making a sale easier, the danger with different breadths if cover is that if the customer later gets one of the simplified out conditions, they will receive no benefit. That transfers a risk to the customer that they may not fully understand and risks the wrath of the Ombudsman in future. No problem if that’s what the customer really wants, but the onus is very much on the adviser to ensure such simplified plans are sold correctly and with full understanding and acceptance.

One vulnerability for advisers with standalone CI plans is that customers must understand why there is no life cover so, as always, carefully documenting reasons why is important. Where disputes arise, it is invariably only after death, when a family member believes their loved one would have wanted life cover.

That said, there is a case for standalone CI in the right circumstances. So Zurich’s new plan offers advisers and customers another option when it comes to CI – with the bonus that no life cover means lower premiums too.

Plus points: A simple additional option – CI with or without life cover; Mirrors the existing plan; The market for standalone cover is growing.

Not so plus points: It’s imperative customers only choose this option if there is no need for life cover, or if it is not available or wanted; A choice of more or fewer conditions covered transfers some risk to the customer.

Website: https://www.zurichintermediary.co.uk/critical-illness-cover.

Rating (max 10): Overall: 7. Silver

Tags: CI; Zurich

I Mark: No