Protection Topic 5 – Protection Solutions in the event of illness/disability: CIC and IPI

Question 1

Critical illness cover (CIC)

Answer 1

• Pays lump sum upon diagnosis of a range of specified illnesses
• Some newer providers have introduced income
• No need to pay back money if they recover
• Once it has been claimed, new policy must be set up

Question 2

Illnesses covered under CIC range from providers, but all plans cover:

Answer 2

• Most types of cancer
• Heart attack
• Stroke

Question 3

In the past, companies covered the same conditions but sometimes applied different definitions on how each condition would be assessed. In response to this…. developed model definitions that should be followed

Answer 3

the Association of British Insurers (ABI)

Question 4

Many other conditions are often covered by CIC, such as

Answer 4

• Coronary heart disease requiring surgery
• Major organ transplant
• Multiple sclerosis
• Kidney failure
• Paralysis
• Coma
• Deafness
• Blindness
• Loss of limbs
• Motor neurone disease

Question 5

Typical uses of CIC:

Answer 5

• Provision of long-term care, either in hospital or at home
• Alterations to living accommodation
• Purchase of specialised medical equipment
• Mortgage/debt repayment
• Providing protection of lump sum investments avoiding the need to cash them in for money
• Improving quality of life for terminally ill person

Question 6

CIC can be arranged on the basis of indexed cover, which is suitable for when the cover is used simply to

Answer 6

pay for medical/care costs.

Question 7

Types of CIC plans

Answer 7

• stand-alone plans
• addition to a term assurance
• addition to an endowment
• option on a WOL plan
• combined-needs plan
• group CIC

Question 8

Typical general CIC exclusions:

Answer 8

• Diagnosed with illness that is not on the list
• Not surviving for a specified period following diagnosis
• If a person with a single policy dies, a standalone policy will not pay out

Question 9

Income protection insurance (IPI)

Answer 9

• Replacement income following illness, disability or accident
• Cannot cancel cover simply from poor claims experience
• But does have a reviewable premium structure – reviews every 5 years
• Most are now on a fixed-premiums basis

Question 10

IPI can be structured as

Answer 10

• A stand-alone policy (pure protection)
• An option on a universal WOL policy

Question 11

Traditionally, companies pay… of pre-disability/illness income for IPI

Answer 11

50-70%

Question 12

There is usually a deferral period for IPI of minimum 4 weeks, where no benefits are paid. Client can choose from 4, 13, 26, 52 or 104 weeks. Two factors affecting choice of referral periods:

Answer 12

• Employee’s sick pay benefits
• Cost

Question 13

Group income protection

Answer 13

• Group IPI is cheaper to run and can be an allowable business expense
• Can cover NICs and pension contributions
• Advantage that scheme is normally accepted without medical evidence

Question 14

Difference between CIC and IPI

Answer 14

CIC

• Pays lump sum
• Aimed at meeting debt repayment or additional costs of illness
• Pays if one of a range of illnesses is contracted
• Can be paid with virtually no time off work
• CIC pays one lump sum, no more

IPI

• Replacement income
• For someone who is unable to work
• Can be invested in unit-linked policy
• Have to be off work for a period of time before payment commences
• IPI pays until retirement if needed

Question 15

A number of CIC providers have introduced severity-based CIC – where

Answer 15

payment of portion of sum assured on diagnosis goes ahead, and rest is paid down the line, in line with the severity of the illness.

Question 16

Real life cover combines

Answer 16

life cover, CIC, IPI and more protection benefits, and is split into life cover and living cover.

Question 17

Waiver of premium

Answer 17

where premiums are “waived off” if you fall ill and cannot afford them, but still keeps your benefits intact. This will cost extra onto regular premiums, usually 4-6% more.