Lewisballs Edition 2

Lewisballs Edition 2, Money Box, Saturday 17th October (Repeated Sunday 18th)
Paul implies that life insurance companies unfairly refuse to pay claims.  He’s wrong and we explain why. 

On the BBC website part of the subject matter is described as ‘the terminal illness policy that hasn’t paid out.’  The item starts at approximately 16 minutes 48 seconds into the programme.  Listen here: https://www.bbc.co.uk/programmes/m000nkhy 

Paul correctly explains that Mortgage Protection Assurance pays out on death and comes with an add-on of Terminal Illness Cover.  However, he then adds “and that can be a comfort, at least until you try to claim it.”  The implication is that insurers make promises they don’t keep.  He then tells us the very sad story of Matt and Lynne who have a Decreasing Mortgage Protection Assurance life insurance policy, a ‘DMPA’ as they’re known.  Matt has been diagnosed with terminal cancer.  The policy has less than one year to run and like all DMPA policies, the cover reduces each month in line with the mortgage.  Their daughter Michelle is interviewed and understandably she is very emotional.  She explains that Legal & General have refused a payment under the Terminal Illness Cover clause because the policy has less than a year to run.  She describes Legal & General’s stance as “beyond belief” and Paul exclaims “They’ve paid £45 every month for this policy!”, the implication again being that somehow, they’ve been cheated.  Paul says “it does seem very unfair”.

So, what are the facts?
The first thing to understand is that Matt and Lynne’s policy is not a ‘terminal illness policy’ as the BBC website says, it is a life assurance policy with a terminal illness cover benefit.  It will pay out, unequivocally, should one of them die within the policy term.  As to the limitation of this benefit, the terminal illness cover clause makes it crystal clear that the benefit only applies when a terminal illness is diagnosed before the start of the final policy year.  This was a standard clause on all such policies for many years and is an additional benefit which insurers have added to their policies.  I have personally written literally hundreds of such policies and the conditions have always been clear.  I cannot recall as to how long it is since insurers started providing the additional benefit of terminal illness cover, but I can say that when I worked for a life assurance company between 1980 and 1985, no company to my recollection offered that added benefit.  So why have the terminal illness cover clause and why would insurers exclude terminal illness cover claims made during the policy’s last year?  The answer to that is pretty simple: An insured person can be diagnosed with a terminal illness but can often outlive the period of cover.  Insurers have to draw the line somewhere as to when they will and won’t pay out.  I had a client paid out under a terminal illness cover clause when he was given less than a year to live.  The insurer paid out, no problem, on a policy due to expire in 18 months.   I was overjoyed to bump into him three years later at a model railway exhibition, still ‘terminal’ but doing very well. So, at that point he’d outlived his actual cover by 18 months.  Obviously, the insurance company didn’t ask for its money back, it took it on the chin.  More recently on the 29th of May this year I had Legal & General pay out a terminal illness claim on a policy I wrote for a client on 10th September 2004.  Legal & General pays its claims.  In the 35 years since I first started work as an Independent Financial Adviser, I’ve never had a single death, critical illness or terminal illness cover claim declined, by Legal & General or any other insurer.  Terminal illness cover claims are paid by Legal & General and every other company precisely according to the policy conditions.  Legal & General has done nothing unreasonable or underhand in the case in question. 

So why didn’t Legal & General just ‘take a view’ and make an ex-gratia payment?
The terminal illness cover is a legal part of the contract.  It’s not a ‘freebie’, it’s not there because the insurer was being ‘nice’.  Like every part of every insurance contract, the terminal illness cover benefit has a cost, however large or small, and that is factored into the premium payable. If Legal & General abrogated its rights in this instance then there is no doubt that so-called claims management companies (CMCs) would soon be flooding the Internet advertising along the lines of “Was your husband or wife diagnosed with a terminal illness in the last year of their life assurance cover?  Did they die after your life assurance policy expired?”  Then they’d be flooding the Financial Ombudsman Service with demands that all other such claims should be paid, with them, the CMC ambulance-chasers, taking their average 35% cut.  Go back to what we said above: Insurers have to draw the line somewhere.  

Are the contract terms unreasonable?
Paul is implying that Legal & General should have ignored the clear terms of their own contract because in his words “it does seem very unfair” and therefore should have paid out.  But there are two sides to every contract.  Can you just imagine Paul’s reaction if an insured person died with only a minute left to run on a policy, and the insurer refused to pay out?  Paul would rightfully denounce them for their breach of contract.  Every insurance contract apart from whole-of-life cover runs for a specific term in years or to a specified date, e.g., the insured’s 65th birthday.  What story is Paul going to run next?  Howsabout one along the lines of “My husband died in an accident the day after his policy expired and as it was only one day then the insurer should still pay out”?  

So how can it be right if insurers are now paying out on terminal illness cover claims on policies written after 2016?
Paul had an expert on the show, Harvey Kambo, from the Money to the Masses website. Paul, talking about new policies, refers to the one-year clause being changed for post 2016 policies and asks Harvey “Should it be done retrospectively?”  Harvey replies, “In my opinion yes.”  This seems to be one of those occasions when the expert isn’t much of an expert at all.  I suppose insurers could theoretically do what Paul suggests and offer policyholders the opportunity to vary the contract conditions and pay an extra premium, but that is more problematical than either Paul or his ‘expert’ appear to have considered.  Doing this would result in a phenomenon known, when I was underwriting, as ‘selection against the company’, i.e., the policyholders most likely to take up the offer would be those who knew their health had seriously deteriorated, whereas those who thought themselves healthy would most likely decline the offer.  Insurers would therefore be extending the terminal illness cover to exclusively bad risks and not getting the mix of good and bad on which relies the economic viability of all forms of insurance.  Both Paul and Harvey also seem to be oblivious of the need for underwriting.  A policyholder who stops paying premiums, lapses a policy and then wishes to reinstate it is obliged at the very least to sign a declaration of continued good health, confirming that their health is no worse than it was at inception of the policy, and other medical evidence may be required.  The same applies to those wishing to extend the cover in some way, lengthening the term on increasing the sum assured.  Health evidence is required because the people most likely to want to reinstate a lapsed policy or to in some way extend the cover are those who have developed a condition that impairs their insurability.  Paul and Harvey seem to imply that insurers should policyholders of pre-2016 policies to sign up to post-2016 terminal illness cover conditions without any underwriting whatsoever.  That would be irresponsible on the company’s part and a dereliction of its duty to manage its affairs responsible for its policyholders and members/shareholders. 

Claims Paid Statistics Tell the True Facts About the Payment of Claims

When I founded West Riding, I was writing an average of around 225 protection policies annually, but the shape of our business has changed and these days we are mainly a wealth management business, though we do still write some cover.  Paul Lewis had his expert Harvey Kambo on Money Box telling the listeners what he wanted them to hear but we asked a real expert Alan Lakey of Highclere Financial Services Ltd based at 271 High St, Berkhamsted HP4 1AA. 01442 870512, email  alan.lakey@highclerefinancial.com .  Alan maintains extensive and impeccable records of insurance company claims paid and policy conditions going back 20 years.  We asked Alan whether it was true that all insurance companies have changed their terminal illness cover conditions since 2016.  Alan very kindly supplied claims-paid statistics on life assurance, critical illness cover from his self-compiled and authoritative database.  

Type	Year	Aegon	Aviva	Legal and General	Royal London	Scottish Widows	Zurich
Life Percentage of Claims Paid	2019	96.0%	98.6%	97.0%	94.3%	99.4%	99.0%
	2018	98.0%	98.9%	97.0%			99.0%
	2017	98.0%	98.9%	98.0%			99.0%
	2016	98.0%	98.9%	99.0%			Not Provided
Critical Illness Cover Percentage of Claims Paid	2019	94.0%	93.1%	92.0%	92.6%	93.0%	90.0%
	2018	93.0%	92.6%	93.0%			95.0%
	2017	94.0%	93.2%	92.0%			95.0%
	2016	95.0%	92.5%	92.0%			Not Provided
Terminal Illness Cover Percentage of Claims Paid	2019	93.0%	Inc in Life	95.0%			Inc in Life
	2018	95.0%	Inc in Life	96.0%			Inc in Life
	2017	94.0%	Inc in Life	97.0%			Inc in Life
	2016	95.0%	Inc in Life	96.0%			Inc in Life

So, what about these supposedly iniquitous clauses concerning the payment of Terminal Illness Cover claims?  Have they all been made more lenient since 2016 as Harvey Kambo claimed?  No.  The table below summarises Terminal Illness Cover claims-payment criteria.  In the case of Aegon for example, a Terminal Illness Cover claim will be paid if the client is diagnosed as having a terminal illness that is expected to result in death within 12 months, even if that diagnosis is made in the final days of the policy term.  With Legal & General on the other hand, a Terminal Illness Cover claim will only be paid if the diagnosis is made before the policy’s final year commences.  The policy will still pay out as expected though if the client dies before the end of its term. 

Insurer	2015 Wording	2012 Wording	2009 Wording	2006 Wording
Aegon	Death within 12 mths	Death within 12 mths but not in the final year	Death within 12 mths but not in the final year	Death within 12 mths but not in the final year
AIG/Ageas/Fortis	Death within 12 mths	Death within 12 mths	Death within 12 mths	N/A
Aviva	Death within 12 mths	?	?	?
Beagle Street	Death within 12 mths but not in the final year	Death within 12 mths but not in the final year (2013 launch)	N/A	N/A
Canada Life	Death within 12 mths but not in the final year	N/A	N/A	N/A
Foresters	Death within 12 mths but not in the final year	Death within 12 mths but not in the final year	N/A	N/A
HSBC	Death within 24 mths	Death within 12 mths	N/A	N/A
L&G	Death within 12 mths but not in the final year	Death within 12 mths but not in the final year	Death within 12 mths but not in the final 18 mths	Death within 12 mths but not in the final 18 mths
LV=	Death within 12 mths	Death within 12 mths	Death within 12 mths	Death within 12 mths
Royal London	Death within 12 mths	N/A	N/A	N/A
Scottish Widows	Death within 12 mths	N/A	N/A	N/A
Vitality	Death within 12 mths but not in the final year	Death within 12 mths but not in the final year	Death within 12 mths but not in the final year	?
Zurich	Death within 12 mths	Death within 12 mths	?	?

Source: Alan Lakey, Highclere Financial Services Ltd based at 271 High St, Berkhamsted HP4 1AA. 01442 870512
Email alan.lakey@highclerefinancial.com

Conclusions

Our Verdict
This was a classic misuse of Money Box as a bully-pulpit to broadcast an unfair unbalanced non-story comprising elements of emotional blackmail and sly innuendo, e.g., Paul’s phrase that terminal illness cover “… can be a comfort, at least until you try to claim it.”  Paul often implies an accusation when he can’t justify making it outright.  He seldom directly accuses.  Instead, he suggests or implies something is wrong or unfair by way of a question or exclamation or the tone of his voice.  Perhaps he thinks this affords him some plausible deniability.  Maybe we should be glad he’s not a lawyer.  With talents like those as a defender he could get a lot of guilty men off, or as a prosecutor he could send a lot of innocents to jail. 

As is often the case with such items, the narrative can be summed up as ‘Big uncaring business cruelly, heartlessly and unfairly puts one over on the little guy’ with Paul casting himself in the role of the champion of the underdog.  The more prosaic truth is that Legal & General completely met its obligation to its policyholder and the clients got precisely what they paid for.  The contract they made was fulfilled to the letter.  The only real mitigating factor in this item is that the distorted impression created is not 100% down to Paul.  Legal & General reprehensibly chose not to put up a spokesperson willing to explain the facts and to tell the hard truth that it had nothing of which it needed to be ashamed.  Legal & General should have stood up and defended itself.  By not doing it has let down the entire sector.  Hopefully this goes some way towards rectifying that false impression. 

Our advice to Paul:  Please be fair and accurate.  If you’re going to make accusations, come right out with them if the BBC’s lawyers will let you.  If they won’t let you, then ask yourself whether you’ve really got a story.  Innuendos and implications aren’t fair and can lead to your listeners drawing inaccurate inferences which might cause them to financially self-harm, if for example they wrongly conclude that life assurance is a waste of money and they cancel their policies.  Creating the false impression that UK life assurers won’t pay out makes you the financial journalism equivalent of an anti-vaxxer. It’s open to you to use a future edition of Money Box to undo the damage, set the record straight, and correct the false impression you have created. 

In the wider context Paul, continually trotting out anti-business rhetoric does nothing useful for the UK or its citizens.  Who, Paul, do you think creates wealth?  It’s not the government.  It’s business.  Business makes things, mines things, moves things, builds things and provides services that everyone needs.  Most of these functions are not done by government and never have been.  Many that were done by government in the past are now done by business, because government could not do them efficiently when it had the chance.  Business also employs the vast majority of your listeners.  Financial services businesses, insurers like Legal & General and advisers like us, ensure that families aren’t plunged into poverty and don’t lose their homes when the worst unexpectedly happens. 

Our advice to Legal & General and all other life assurers: You have a proven excellent track record at paying claims. Quit hiding your light under a bushel and don’t be frightened of self-proclaimed consumer champions like Paul.  If they’re talking balls, say so.  We will.  Being cowardly doesn’t just do Legal & General and its shareholders a disservice, it does a disservice to the entire financial services sector and the general public. 

Our advice to the general public:  Most people who need cover, be it life assurance, critical illness cover or income protection, don’t have it, and those who do often don’t have enough of it.  Consult an Independent Financial Adviser and get advice on your needs. Whatever Paul says, as we’ve proved above, life insurance does pay out.  I’ve never had a claim declined in 35 years and I’ve never had a widow tell me that her husband had too much life assurance cover.  

The Moneytothemasses website itself states – “Terminal illness benefit is normally excluded in the last 18 months of a policy term. This is due to the fact that it is difficult for a medical practitioner to predict the likely date of death meaning a policyholder could receive a payout and go on to outlive the term of the policy.  This policy condition is fairly standard. The policy will still cover a policyholder for death in those last 18 months, it just won’t pay out for the diagnosis of a terminal illness.  Someone who has been diagnosed with a terminal illness could theoretically be refused a payout (on the terminal illness benefit on their life insurance policy) if they are expected to live for more than a year. That said, as the life insurance company will still have to pay the benefit upon death, they will often still pay out on the terms of the terminal illness benefit, so long as it’s clear that the policyholder will die before the end of the policy term.  Contrary to popular belief, insurance companies do not want to decline claims as rejected claims negatively impact their claims statistics, making them a less attractive proposition for new customers.”
Published on Moneytothemasses 02 June 2019. 

We invite you to listen to the programme and make up your own mind and we invite Paul to write a reply on his own website and to send us a link.  If he does, we’ll gladly add it to this article.  Thank you for taking the time to read this. 

We gratefully acknowledge the invaluable assistance of Alan Lakey of Highclere Financial Services Ltd for his contribution and for making available to us his expertise in our efforts to be fair, balanced and accurate.