Brokers diagnose flaws in Virgin's cover for cancer

It carries lower premiums, but is it better value than comprehensive critical illness policies?

A new type of insurance policy is stoking up the debate over the sale of complex financial products to consumers without professional advice.

Last week Virgin Money, the financial services arm of Sir Richard Branson's empire, launched a policy designed to pay out if you're diagnosed with cancer.

This is the sole cancer-only product on the market; critical illness cover (CI) must protect you against other serious illnesses, like a heart attack or stroke, as well. Virgin Money says its focus on one disease means lower premiums (though reviewable every five years).

And unlike CI cover, which pays out a single lump sum when a serious illness is diagnosed, Virgin Money's insurance is staggered according to the severity of the cancer. It pays out 10 per cent of the sum assured at an early stage of diagnosis; 25 per cent at an intermediate stage; and 100 per cent (or what's left) if the illness is at an advanced stage.

Virgin Money's cover, underwritten by Scottish Widows, is bought without financial advice over the telephone or online (in the same way as CI cover on the Tesco website). However, its launch has been overshadowed by a clash with brokers who sell CI, income protection and basic life insurance. CI cover offers bigger payouts, they argue, and more comprehensive protection.

While the introduction of an "early stage" payout is welcomed as an industry first, they warn that reduced payouts at the intermediate and advanced stages of cancer don't compare with those from CI cover according to definitions from the Association of British Insurers (ABI).

"It's not particularly good value as [Virgin Money] pays out only 25 per cent of the sum assured at the same stage that traditional CI will pay out in full," says Jason King at Life Policies Direct.

"Our experience is that the [full] 100 per cent is required at this 'intermediate' stage if a client is to be free of financial stress and be able to concentrate on beating their illness. Only traditional CI can achieve this."

Kevin Carr of broker Lifesearch warns that Virgin Money's failure to stick to cancer definitions provided by the Association of British Insurers (ABI) could lead to people missing out on payments they would otherwise have received with standard CI cover. "The 100 per cent 'advanced' definition [from Virgin] is thought by many in the sector to be more severe than the industry norm.

"We expect to see Virgin pay more claims of 10 per cent of the sum assured for early stage cancer, but fewer claims for the full sum."

Scott Mowbray, spokes- man for Virgin Money, says it isn't an ABI member and concedes that it has stricter terms for payouts on advanced cancer claims. (Its intermediate diagnosis conforms to ABI definitions.)

Mr Carr contends that in diverging from the ABI, Virgin Money makes it difficult for consumers to compare different policies, though the ABI's website - www.abi.org.uk - can help in this respect.

The spat between the brokers and the ABI is part of a wider debate about the sale of such products. Many, including consumer body Which?, argue that complex policies such as CI or Virgin Money cancer cover require advice. That makes the products more expensive but professional advice should, in theory, cut down the risk of consumers making mistakes and buying the wrong cover.

Others, such as Virgin Money, say the public should be able to buy such cover direct for less. Any problem in the event of a claim, and consumers can go to the Financial Ombudsman Service.

A new type of two-tier cancer cover - for serious and benign conditions - being considered by an ABI working party has already sparked industry outrage.

For now, anyone considering protection should check all the exclusions in a policy before buying. If your family has a history of cancer, it will be worth going to a broker to compare the different products on the market.