During November CIExpert launched its ‘single is best’ campaign. No, this was not guidance on the pitfalls of marriage but a considered view of the merits of single life protection policies rather than a joint life plan.
There are those in the industry who automatically default to a joint life plan for a couple, a stance supported by many compliance departments and networks.
Their simplistic reasoning is that a joint life plan is cheaper and therefore should be used to protect a joint mortgage.
This viewpoint falters when considered against the tenets of Consumer Duty and the application of logic.
HIGH HORSE
Now, this is not me preaching, nor me sitting on my high horse and telling every adviser how to do their job. The disadvantages of automatically going down the joint life policy route are manifest when scrutinised objectively.
Back in February this year we published Critical Thinking 24, which was the result of Opinium interviewing 5,000 consumers regarding their perceptions and understanding of critical illness policies.
The results outlined a massive lack of understanding with only 11% of consumers aware that a joint policy ends after one full payment claim.
Additionally, the vast majority of claimants did not use the policy proceeds to repay their mortgage, throwing the logic of a joint life plan into question.
Only 11% of consumers are aware that a joint policy ends after one full payment claim
OVERWHELMING RATIONALE
The rationale for not using a joint life plan, especially when critical illness is attached, is overwhelming.
The most obvious is that the non-claimant partner has now lost his/her protection.
They will be older and may also be uninsurable or unable to afford a rated premium. The children’s critical illness protection has also been removed.
By using two single life plans the knowledgeable adviser can select the most appropriate plan for each applicant. When assessing critical illness claims we can see that close to 80% of female claims are due to cancer whereas it is around 50% for males. The opposite applies to heart-related conditions which are responsible for around 3% of female claims and close to 20% for males.
DOMESTIC ABUSE
Domestic abuse is a serious issue and this extends to one party of a joint insurance policy controlling his/her partner and not allowing an existing joint policy to be split.
Separate policies would help to minimise financial coercion and enable each partner to continue with their protection plan.
Consider also where a couple applies for a joint life plan and has to answer the health questions truthfully.
One party may have a medical history that they do not wish to share.
Separate plans resolve this as the non-connected party has no legal right to see the answers whereas with a joint plan they would.
CHILDREN’S CI COVER
Children’s critical illness cover is responsible for around 4% of all claims. Utilising two single life plans enables two separate payments.
Many advisers do not place joint life plans in trust, assuming that it is the intention of both parties that the other receives the benefit.
Two single life plans should be placed in trust enabling the trustees to remove the ex-partner as a beneficiary.
Many insurers now make a payment for certain conditions when added to a UK waiting list.
Imagine a scenario where there is a joint life plan and one party is told that he/she will have to be added to a waiting list for surgery and shortly after the joint party dies ensuring only one payout?
ADDED BENEFITS
Finally, added health benefits such as 24/7 GP and second medical opinion are lost once the policy ends. Surely not the outcome that the clients envisioned.
Now the matter of cost is often thrown in the ring as to why a joint life policy is to be utilised.
Think about the difference between price and value. Ignoring insurance, every purchase we make is based on value be it a house, a car, or a television.
A joint plan at £75 per month compares with two single life plans collectively at £81 per month
Insurance should not be an exception.
Iress provided us with pricing data and the cost difference averaged at 8%.
A joint plan at £75 per month compares with two single life plans collectively at £81 per month.
Unless financially distressed, it is hard to imagine any consumer would truly opt to lose all of the benefits outlined to just save £6 per month.
This initiative has the support of industry heavyweights Lifesearch and ReAssure as well as respected commentators Richard Walsh, Ruth Gilbert, Peter LeBeau, Roger Edwards and many others.