With the average CI claimant being in their early forties, a buyback option could be invaluable
Simple products are topical at the moment. Not least with the Treasury overseeing a working group tasked with building a new range of financial products that will help people take responsibility for their finances.
This brings into sharp focus the raft of features and options on many of today’s typical protection plans and begs the question – do they add complexity rather than value for advisers and their clients?
One area that does add value is the buyback option provided under critical illness (CI) plans. A typical buyback option provides additional CI cover when a claim has been made. So if a client suffers a heart attack and has their claim admitted then new CI cover is set up for the period after the claim.
Chances are that following a claim, a person will be uninsurable – or at least for a period of time after they have claimed. Their ability to be offered CI cover and even life cover will be severely reduced and will depend on the actual illness suffered and its severity. With the average CI claimant being in their early forties, this option could be invaluable. A typical buyback option will have cover ranging from the top three critical illnesses – cancer, heart attack and stroke – to providing a more extensive list of illnesses covered.
These options can be set up within a defined period after the initial CI claim and some come with added features of life and terminal illness cover and children’s CI cover.
The payment method varies from payment up front to payment when the buyback cover starts. Adding the option onto a Scottish Provident Self Assurance plan, for example, can add an average of 10% to 12% to the CI premium. So for example, providing £100,000 CI cover with a £50,000 buyback option would cost £23.89 – adding on the buyback option has increased the cost by £2.32 per month (quote as at 15/06/12, male, aged 30, non-smoker).
If a client has a heart attack, the chances of them having a second one are so much more increased. Ten per cent of people that have had a heart attack are at risk of having a second in the year after the first attack – this drops to 3% in the years after that.
There are lots of compelling reasons for advising clients that they have a need for the buyback option. And it shouldn’t be overlooked as it can’t be added once the CI cover has been set up.
Jennifer Gilchrist is the senior product development manager at Scottish Provident