Overcoming financial pain of the battle against illness

In bowel cancer awareness month, Edmund Tirbutt assesses the budgetary fallout that arises from dealing with such diseases.

If bowel cancer is treated early, there's a great chance of recovery. But survival can throw up its own financial problems. Just ask 32-year-old accountant Sarah Wills, who had a major bowel cancer operation in January 2012. Although she was able to resume her passion for playing the classical guitar two months later, a full-time return to work wasn't possible until November.

Initially, Sarah enjoyed the benefit of a generous sick-pay scheme, which meant she received her salary in full.But once that stopped in August 2012, she could turn to a £153,000 critical illness cover payout from Zurich Life. Without that, she says she would have struggled. She was able to use the cash from her insurer to pay off her mortgage on her home near Plymouth, and it also gave her valuable spending money.

"The policy was invaluable as it meant that I didn't need to worry about losing the house or running down existing savings when I wasn't earning," says Sarah.

"The money was in my bank account a month after I'd done all the paperwork. If you've got any sort of big liability which is going to be an expense, then you need the cover."

Sarah's policy, which she had taken out jointly with her 33-year-old husband Rob, cost £60.39 a month in premiums. That may sound a lot, but it also offered life insurance on the couple. Combining life and critical illness cover in this way can shave up to 15 per cent off the premium but the downside is that it can leave you uninsured. Sarah is likely to have to wait a couple of years before insurers feel she is again an acceptable risk for life cover.

For that reason, it can be worth considering paying for separate policies. In your twenties, £100,000 of standalone single-life critical illness cover can cost around £20 a month but by the time you reach your mid-forties, it can cost three times that.

The cover, which pays out a tax-free lump sum if you are diagnosed with one of a stated number of serious conditions, can be particularly good news for cancer sufferers because cancer now accounts for more than 60 per cent of payouts. The other main sources of claim are stroke, heart attack and multiple sclerosis.

Policy wordings for cancer are also more generous than ever before. But the exact terms can vary significantly between insurers.

For example, Legal & General covers all types of surgery and treatment connected to prostate cancer whereas many other insurers only make a partial payment if you actually have a prostatectomy.

Other favourable recent trends are that all major insurers now include children's cover for a proportion of the cover amount and some offer premium discounts to policyholders who are excluded for certain conditions.

Aviva, Ageas Protect, Friends Life and Zurich Life do this for both cancer and multiple sclerosis while Legal & General, LV= and PruProtect do it only for cancer. Alan Lakey, partner at Highclere Financial Services, a specialist adviser based in Hemel Hempstead in Hertfordshire, says: "None of them stipulate the amount of the discount as they calculate it on a case-by-case basis but in my experience it tends to be in the region of 15 per cent to 20 per cent."

In view of such significant cover differentials, the surest way of getting a policy best suited to your individual circumstances is to consult a specialist adviser and, as most of these receive commission from insurers, this need cost you nothing.

Such specialists can also help dispel important misconceptions that have traditionally prevented people from buying cover. Prominent among these is the idea that "these things only happen to other people".

According to consultancy Protection Review, which monitors a range of sources, the chances of suffering a critical illness before retirement age are as high as one in six. Another is the idea that critical illness insurers are always trying to wriggle out of paying claims. There was certainly some truth in this a decade ago, when only about 80 per cent of claims were paid industrywide. But guidance issued by the Association of British Insurers (ABI) in 2008 about dealing with non-disclosure more fairly, together with a much more scrupulous stance taken by insurers at the application stage, have seen average payout rates rise to more than 90%.

Mark Roberston, protection partner at Chadney Bulgin, a specialist adviser based in Fleet in Hampshire, says: "It's rubbish that they don't pay out although some clients still seem to believe this because of the bad publicity generated by some critical illness insurers in the past. If you disclose everything you are supposed to at outset, you are most unlikely to come unstuck."

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