Disability benefit

Under this option the sum insured is payable on permanent disability as well as death. The life office in the event of a claim would need evidence to show that the life insured is unable to follow their normal occupation. This is similar to income protection but the payment in a lump sum payment. Once the sum insured has been paid the policy lapses, it does not pay once for disability and then again for death.

Double accident benefit

If the life insured dies as a result of an accident then an additional payment is made which is equal to that of the death benefit sum insured. There will be various exclusions which attach to the double accident benefit such as suicide, dangerous sports and death whilst involved in a criminal offence. Basically the accident benefit is being provided by a personal accident type cover and that operates with more exclusions than a normal life insurance cover. Failure to be able to claim under the double accident benefit will not automatically preclude a claim under the pure life insurance cover.

Increasing cover option

This option allows the policyholder to increase the life insurance cover at certain times and up to certain amounts. An example would be every three years and not for an amount greater than the original sum insured. No medical evidence is required on the increase but the premium would be adjusted according to the age of the life insured at the time the increase was agreed. Sometimes the increase has to be by way of a new policy. Sometimes it can only be triggered by a specific event such as marriage, birth of a child and the like.

Critical illness

Many life offices now offer this cover. Please note that the cover is an additional cover but not an additional sum insured. Therefore if the critical illness pays out the life cover will not pay out a second amount. This cover has the advantage that if the life insured is diagnosed with a critical illness, as covered by the policy, then he/she can receive the pay out before he/she dies.

The policy will spell out what is covered by critical illness, and the list can vary per life office. The cover general includes items such as cancer, strokes, coronary artery disease and heart attacks. Others that may be covered are kidney failure, major organ transplants, paralysis, permanent total disability multiple sclerosis and blindness. Aids is very seldom covered and usually excluded.

Critical illness is offered to policyholders as a bolt on to whole life policies, especially unit linked policies where the extra premium required is paid for by cancelling additional units. It can also be added to term insurance and some life offices now offer this cover as a stand alone policy.

Stand alone critical illness cover can be either guaranteed with a fixed benefit or unit linked. A few life offices offer the option of having the benefit paid in instalments rather than as a lump sum.

There is a movement towards reviewable critical illness policies as the advance in medical science provides improved diagnostic techniques. Premiums which can be reviewable are often 5 to 10% lower than those which are not. The review may be every five or ten years and might be limited to general changes in medical science rather than the life insured’s fitness.

The Association of British insurers (ABI) have issued a statement of best practice for critical illness insurers on the provision of better policy information to help one policy to be compared more easily with another.
next - Widows and Orphans Pension Schemes