AIG Life’s Key3 is designed to be a simpler form of critical illness insurance (CI), and aims to provide more affordable cover and to appeal to younger people.
Clients can have the plan’s CI cover with or without life insurance – which also pays out on terminal illness diagnosis. Unlike more comprehensive CI plans, Key3 pays out on diagnosis of cancer, heart attack or stroke only. The standalone version has a 14 day survival period.
As well as providing a lump sum benefit, the plan also gives access to the Best Doctors service for up to three years after a claim has been paid. In addition, AIG’s unique discretionary Claims Support Fund can pay out up to £300 while a claim is being processed, in order to help with additional expenses such as travel and parking costs, counselling and physiotherapy.
The plan is available from age 17 to 75 at outset on a level, decreasing (to match the declining capital sum outstanding on a capital and interest mortgage at a particular interest rate) or increasing basis (with the benefit rising by 5% a year, although premiums will rise by more). Waiver of premium is also available on one or both lives on a 26 week deferred basis. In order to compensate clients if a claim is paid late, AIG Life will add interest in line with the Bank of England Official Bank Rate (described as ‘base rate’ in the T&Cs).
The plan is available on single lives or on a joint life (first event) basis or on the life of another.
AIG Life’s launch materials say the new plan is targeted at those who haven’t traditionally considered such insurance, including younger single people who rent, those on a tighter budget and people who may choose not to seek full face-to-face financial advice. Research with intermediaries found they said customers most feared the three conditions covered and that they might be interested in insurance covering these three medical conditions if it cost less than comprehensive CI cover.
What They Say
CEO Adam Winslow said: “Key3 gives customers financial support to help them recover from cancer, a heart attack or a stroke. This [plan] fills a gap in the market for customers who feel they can’t afford critical illness insurance or who, like Generation Rent, do not own a home and are not prompted by a house purchase to look at how they will manage financially if they suffer from cancer, heart attack or a stroke.”
What We Say
"CI cover has been stuck in the development whirlpool of adding more and more conditions and getting ever more complex for some years now, so it is refreshing to find an insurer that is looking to offer something not just a bit different, but simpler and cheaper too. Targeting the largely forgotten Generation Rent makes sense too.
"But is this the sort of cover young people or those on a tight budget should be considering? The benefits are clear and relatively simple but, to understand the main downside it is worth considering just how much cover they could be losing compared to more comprehensive CI cover and trying to put that into context. Imagine, for example, a new term or whole of life plan that paid out on death but only if you die in the first ten months of the year – it would not pay out if you die in November or December. In return, the insurer offers a 30% premium discount. Would you buy it? Would you recommend it?
"If you did recommend that plan, what would happen if your client died in say December? Would their family remember your warnings, or would they look to sue for misselling? Could the same apply with Key3 – might the FOS or the FCA ask whether the adviser spelt out the risks not covered, taking into account the client’s age, sex, history and the term of the plan? Further, even if they did, did the client fully understand?
"That sort of 10/12ths life policy does not exist but, on AIG Life’s own figures, that’s the kind of difference in cover Key3 represents compared to comprehensive CI. In practice, if you suffer say a benign brain tumour, MS, blindness or kidney failure – to name just four from more than 30 other conditions a typical comprehensive CI plan would cover – your need for financial help is probably not any less than if you had cancer or a heart attack.
"To some extent, Key3 is going back to the very early CI designs of the mid 1980s (albeit with some valuable 2016 benefits not available then). Those early plans were themselves an improvement on previous ‘cancer only’ plans, which appealed to people’s fear of cancer, but offered much less broad protection as they only covered one of many situations where someone’s financial health could be severely impacted by a serious medical condition.
"Back then, insurers quickly found that customers wanted a CI plan that paid out if they suffered a life changing serious condition – a critical illness - not one that paid out if they had a ‘headline’ condition only. So, fairly quickly, conditions such as MS and benign brain tumour were added. The downside, of course, is that in the race to get closer to covering all critical illnesses (which no CI plan does at present) complexity has multiplied too. Moreover, there will always be cases where company A’s CI plan would pay out but company B’s would not (and vice versa) but, such events are (relatively) rare, and the adviser needs to use their judgement to decide which plan, on balance, provides the best cover for their client. But, for every four Key3 claims that will be paid, an extra claim could have been paid on a comprehensive plan, so the risks to client and adviser are magnified. In effect the plan takes us back to the days when 20% of CI claims were refused. This plan does not refuse such claims – it simply doesn’t cover many conditions in the first place.
"There are two situations where Key3 does or could take the CI market forward very positively. First, to help illustrate what good value comprehensive CI cover is. When presented with the choice and an understanding of the risks, I suspect most people would choose the more comprehensive option. If cost is an issue, a lower sum insured today might be a more preferable option to cutting cover by more than a fifth (based on AIG Life’s 2015 adult CI claims stats). Cover could then be increased in future as budgets allow.
"Second, if AIG Life offered clients the option to easily increase cover in future to a more comprehensive level, then the short term risk of having less cover might be judged worthwhile. That would have cost and underwriting implications though.
"I hate criticising innovation and there are many elements of this plan that are well thought out and should appeal, especially to the target markets AIG Life has identified. And, if the client fully understands and accepts just how much cover this plan does not provide, and is happy with that, then the lower premiums could make this a good buy (as indeed it would be for anyone who does suffer one of the ‘big three’ while they have the plan). But it’s a big ‘if’. The question is, is this plan a good buy, or is its’ cover just a cut too far?
"But do let us know your views – am I being unduly negative or are my concerns yours also? Does the plan rightly appeal to people’s fears about the ‘Big 3’, or does it rely on their ignorance of all the other critical conditions that could wreck their financial planning if they arose?"