Aviva has updated its Relevant Life Policy (RLP) product, dropping the existing critical illness cover option and replacing it with an Employee Significant Illness Cover option instead.
The move follows discussions with HMRC among others.
The new cover includes, as well as life cover, the following employee significant illnesses and conditions:
* Advanced cancer.
* Aplastic anaemia.
* Bacterial meningitis.
* Benign brain tumour.
* Benign spinal cord tumour.
* Brain injury due to anoxia/hypoxia.
* Devic’s disease.
* Intensive care (ten days).
* Kidney failure.
* Liver failure.
* Major organ transplant.
* Motor neurone disease.
* Multiple sclerosis.
* Parkinson’s plus syndromes.
* Psychosis and bipolar affective disorder
* Pulmonary arteria hypertension.
* Respiratory failure.
* Severe heart condition.
* Spinal stroke.
* Systemic lupus erythematosus.
* Third degree burns (20% coverage).
* Traumatic brain injury.
* Total and permanent disability (two claims definitions – benefit ceases at age 70).
What They Say
Mark Cracknell, head of protection distribution, said: "When we first launched this product in 2016, there was a difference of opinion across the provider community about how this product works and most importantly how it aligned with tax regulation.
"If you’ve got product providers with a difference of opinion, it creates uncertainty among advisers – predominantly small adviser firms – who want clarity from a tax and legal viewpoint on how it operates within the financial legislation.
"There was a level of ambiguity and we have gone away to remove that ambiguity, by working with HMRC to evolve the proposition. We have removed partial payment from the product and focused on the most significant conditions."
What We Say"Aviva surprised the market in 2016 when it launched a critical illness cover option on its RLP product. Previously, the view was that such policies could only offer life cover and that adding CI cover would result in losing tax relief on premiums. Aviva’s view was based on a very careful look at the relevant legislation (the Income Tax (Earnings and Pensions) Act 2003, part 6, chapter 2 and Income Tax (Trading and Other Income) Act 2005) and was supported by counsel’s opinion.
"Nevertheless, others argued that Aviva’s interpretation was itself incorrect or at least said they had no intention of offering a similar option. That created uncertainty, and Aviva has now resolved that by effectively agreeing with HMRC what can and cannot be offered.
"The result is interesting on a number of levels. First, cover is narrower than on the old version, although existing customers still get all the benefits signed up for and we understand HMRC is not looking to retrospectively attack such policies.
"Second, the new cover arguably links much better with conditions that stop people from working. It still excludes major career threateners such as most mental health and musculoskeletal conditions (income protection remains the main way to cover those very real risks).
"Third, other insurers now look likely to offer similar cover on their RLP products.
"Finally, the creation of an ‘employee significant illness’ option creates a new route for all CI providers that could see CI cover generally much more closely aligned with career threatening conditions. That would both simplify CI cover and avoid what some see as the damaging and confusing ‘race’ to cover more and more obscure conditions while still not covering all critical illnesses.
"Customers lose out by having narrower RLP CI cover (except we can’t really call it that as it fails the ABI’s CI definitions) but the alternative would presumably have been no CI type cover of any sort.
"One route Aviva has not followed would have been to offer this new cover but to allow individuals or employers to have a separate add-on life (not RLP) policy to make-up the cover difference. That would have added complexity (and cost) but we may yet see other insurers go down this route as it opens up some very exciting possibilities to develop the CI market in a way that both appeals to customers and also creates new marketing opportunities for advisers.
"In conclusion, to cut a long story (sorry about that – but the principles are important!) short, the new plan is likely to appeal to more employers (less cover but greater certainty) even though cover is clearly narrower than before."