Why This Matters
The single biggest structural difference between CI policies today is whether they use a severity-based or all-or-nothing claims model. This choice determines whether a client with a mild but genuine condition receives a meaningful payout — or nothing at all. Understanding the difference is essential to giving suitable advice.
The Two Models
| Feature | All-or-Nothing | Severity-Based |
|---|---|---|
| Payout trigger | Condition must meet full definition | Pays at 25%, 50%, or 100% depending on severity |
| Multiple claims | Usually single claim only | Multiple claims possible (different conditions or severities) |
| Mild conditions | No payout | Partial payout |
| Premium cost | Lower | Higher (but more claims paid) |
| Examples | Royal London, L&G, Scottish Widows | Vitality SIC Plus, Aviva CIC+ |
How Severity Models Work
Severity-based policies assign a percentage payout depending on how severe the condition is. For example, a heart attack under Vitality SIC Plus might pay:
- 25% — Troponin elevation without permanent damage (minor event)
- 50% — Heart attack with some lasting impairment
- 100% — Severe heart attack with permanent damage
These policies typically allow multiple claims — you could claim 25% for a mild heart attack, recover, and later claim 50% for a stroke, up to the total sum assured.
How All-or-Nothing Models Work
Traditional policies require the condition to meet a strict definition threshold. If the client's condition falls short — even slightly — no payout is made. Common reasons for all-or-nothing claims to be declined at the definition level include:
- Heart attack diagnosed via troponin but requiring "enzyme elevation" (pre-2019 wording)
- Cancer at an early stage that doesn't meet the "significant progression" threshold
- Stroke where symptoms resolve within 24 hours (transient ischaemic attack vs full stroke)
Key Advice Implications
The choice between severity and all-or-nothing has direct consequences for your client:
- Claims probability: Severity policies pay out on more claims — but often at lower amounts per claim. This is a feature, not a flaw.
- Multiple events: A client with a severity policy who has a mild heart attack and later develops cancer will receive two payouts. An all-or-nothing policy pays once.
- Consumer understanding: Clients often assume "any" diagnosis of the listed conditions triggers a payout. All-or-nothing policies can be a rude awakening.
- FCA Consumer Duty: Are you confident your client understands that their "comprehensive" all-or-nothing policy may not pay for a mild event?