Critical illness cover moves to heal the wounds
Unpaid claims have caused sales to slide, so will greater clarity and lower prices restore faith?
Sunday 18 March 2007
No one likes to think about what will happen if they are ever diagnosed with a critical illness - and the financial implications, especially, may well be the last thing on your mind. But if people depend on your income, they could need protecting.
For years, to meet this need, insurers have been selling critical illness (CI) cover to pay out a lump sum if the policyholder is diagnosed with a serious illness such as cancer, a heart attack or stroke.
But according to Swiss Re Term & Health Watch 2006, an annual report on the protection industry, there has been a precipitous fall in sales of CI cover.
This is backed by findings from protection broker Lifesearch, which show that while sales peaked at around 1.2 million in 2002, they are currently around half that level.
One of the emerging reasons for this is a lack of consumer trust in CI cover, which has been sitting uncomfortably in the spotlight over the issue of delayed payouts and rejected claims.
The latest figures suggest one in five claims are declined, mainly because either the specific type of illness isn't covered or the policyholder has failed to disclose an earlier medical problem. That rejection rate has prompted many to question whether CI is a valid product, though Kevin Carr from Lifesearch says any insurance product that pays four in every five claims is "very worthwhile".
Nevertheless, the CI sector is moving to get its house in order. For greater transparency, it has already begun to publish claims data, and the industry is now hoping that a "statement of best practice" will bring a reduction in the amount of declined claims.
This statement is being introduced next month by the Association of British Insurers and must be adopted by all ABI members. Pivotal to this new regime is that there will be 23 medical definitions listed, including three new standard descriptions for Alzheimer's, HIV infection and traumatic head injury. The aim is to improve clarity and understanding for both consumers and advisers.
"The changes will make it easier to compare providers, as standard terminology will be used," says Emma Walker from the price-comparison service Moneysupermarket.com.
"It will be easier for consumers to see what is and isn't included in the definitions - especially in the case of cancer."
The new definitions will also be "future-proofed". In other words, an initial diagnosis from a doctor will not in itself be enough for a policy to keep paying out. The policyholder will have to continue to suffer symptoms associated with the condition.
Mr Carr says that while future-proofing may mean claims for conditions from which you recover, perhaps due to medical advances, will not be paid under new policies, they may still be settled under old ones.
Many insurance brokers hope the changes, combined with lower premiums, will stem the freefall in sales. Falling prices for CI are a relatively new phenomenon. Recent cuts from providers including Friends Provident and Norwich Union have been augmented by some "aggressive rate changes by Bupa", says Ms Walker.
But don't let cheap deals tempt you into rushing for CI cover, as the policies on offer vary hugely. For example, some cover just eight or nine conditions, while others, including Bupa, list almost 40.
You'll also need to decide whether to opt for a "guaranteed" or "reviewable" rate. With the first of these, the price is more expensive at the outset but is fixed for the term. A reviewable deal, on the other hand, may seem cheaper but the price can rise, without limit, during the life of the policy.
Additionally, some CI policies automatically cover your children as a fringe benefit but not all do. Most, but again not all, also include life insurance free of charge, so check this. And if life cover is included, make sure the policy is written "in trust" - usually via a document sent by the provider - to avoid it being included in any calculations of your liability for inheritance tax.
Take particular care when checking the payout rules concerning your employment. Note that some policies pay out only if the illness means you won't be able to do any job, rather than just your own.
As for how much financial cover to go for, protection specialists recommend you aim for the cost of your mortgage, and then add on an income estimate.
Always check whether any cover is provided by your employer, as many offer an element of income protection - a type of insurance that pays out a tax-free replacement income in the event of ill-health.
'We were paying over the odds'
Paul and Suzanne Hesk, both 40, have just bought £120,000 in mortgage protection, life insurance and CI cover from Axa.
The couple have two children - Ashley, 19, and Jordain, 14 - and decided to review their cover when they remortgaged their home.
"I wanted to get some help and advice on protection products as I know you can end up with something you don't need," says Paul. "After speaking to Lifesearch, we realised we were paying over the odds for our cover from Abbey."
By switching to Axa, the couple have been able to save £20 a month. They have also got a more comprehensive policy.
"Our mortgage has a long time to run and we want to know we are covered should the worst happen," Paul adds. "When it came to filling in the paperwork, we were advised to disclose 'anything and everything' in the family's medical history - to avoid any risk of non-disclosure if we need to claim."
Debt in Britain: Numbers seeking help on how to cope with mounting bills goes up by more than half in three years
Bargain Hunter: BT improves its mobile reception with 'incredibly competitive' deals
Questions of Cash: Why was my case ignored by My Civil Service Pension?
Offset your mortgage and save thousands
Simon Read: 'It went below the radar but you could be eligible for a tax break on your savings'
- 1 Is this bridge haunted by the ghost of nu rave?
- 2 The West has it totally wrong on Lee Kuan Yew
- 3 The day I starred in Only Fools and Horses
- 4 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
Revealed: Putin's army of pro-Kremlin bloggers
The West has it totally wrong on Lee Kuan Yew
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station