Did you hear about the Buddhist who left his entire estate to himself in his will so that he could enjoy it in his next life? Nowadays there is, in fact, no need to believe in reincarnation if you wish to spend the proceeds of your own life assurance policy. But few would want to qualify for the privilege.
Most term assurance policies sold since the late 1990s automatically allow policyholders access to the entire sum assured in advance of death, if they are diagnosed by a specialist as having under 12 months to live.
This terminal illness benefit, which is not normally available during the last 18 months of the policy term, can prove particularly valuable in helping someone who is too ill to work make ends meet. It can also enable them to fulfill a lifetime ambition such as visiting relatives overseas or buying a dream car.
Brian Lentz, principal at Portfolio Insurance Consultancy, an independent financial adviser (IFA) based in Hatfield in Hertfordshire, even reports being contacted in July 2000 by a couple who insisted on having a policy with terminal illness benefit because they wished to be cryogenically frozen – to preserve their bodies after death in the hope that scientific breakthroughs would subsequently bring them back to life. They felt the pay-out could potentially help them get to the Cryonics Institute in the US shortly before death, pay its fee and die nearby.
Lentz wondered whether there would be any tax implications if they were brought back to life – because they would be benefiting from money written in trust to the Cryonics Institute. But no-one could answer the query!
The minority of term assurance providers who fail to offer terminal illness benefit – most of which do not sell via intermediaries – provide unconvincing explanations for their non-conformity.
HSBC and AXA Life plan to introduce the feature during 2003, but Nationwide, Virgin Money, Co-operative Insurance Society and NatWest Life do not.
Virgin Money claims that it does not wholeheartedly believe in terminal illness benefit on the grounds that difficulties in getting medical professionals to agree to 12 month terminal prognoses can create false policyholder expectations. It therefore omits the feature from its wordings, but has paid out in some cases when specifically asked to.
Co-operative Insurance Society, Nationwide and NatWest Life stress that they also offer critical illness cover and that many policyholders take both.
Over three quarters of critical illness policies currently offer terminal illness benefit but it is hard to take issue with this element of overlap because removing it would have little impact on premium.
Of far greater concern is the possibility that some salesmen are insinuating that terminal illness benefit on a life policy is effectively the same as a critical illness addon. Kevin Carr, senior adviser at national low-cost intermediary LifeSearch, says: “Within the last year sales staff from several providers that I have mystery-shopped have implied that there is little difference between terminal illness benefit and critical illness cover. We are also frequently speaking to clients who have been led to believe this.
“This is probably more the result of a genuine lack of knowledge on the part of the advisers as opposed to a deliberate attempt to mislead. Nevertheless, discount brokers and IFAs should make a special effort to be clear on this point.”
Intermediaries should realise that if terminally ill clients have old life policies without terminal illness benefit it can still be possible to secure pay-outs before death via the specialist viatical market – although these will be for less than the full sum assured.
An investment option
Those scratching their heads for an investment opportunity not linked to the stockmarket may also be interested to know that it is now possible to invest in a traded life fund in the UK.
The fund, launched by Shepherds last September (2002), invests in old life policies in the US which have been bought from the terminally ill. It aims to provide annual growth of 9% net of annual management charges, but the fact that it is dollar denominated means there is a currency risk.
Mike Abraham, managing director of Shepherds, says: “At launch there were a lot of initial questions about whether this fund was ethical, because people don’t like talking about death. But there is no more of an ethical question mark against this than there is against critical illness cover. The fund is, in fact, actually helping the terminally ill individuals concerned and represents a double win situation.”