The Big V - a classic Branson innovation or waste of money?

Virgin is expanding to offer critical illness cover, but the experts are not convinced, writes David Prosser

Sir Richard Branson's business ventures have included everything from a record label to an airline, but his latest idea is a little less glamorous. His Virgin Money subsidiary is launching The Big V, an insurance policy that pays out to people diagnosed with cancer.

At first sight, the insurance has the hallmarks of a classic Branson innovation - it's a fresh approach to an old-fashioned product offering consumer-friendly terms and conditions. But insurance experts are already expressing reservations.

"The policy plays on people's fears about cancer," claims Simon Burgess, managing director of independent adviser British Insurance. "If you have a limited amount to spend, you would be much better off with a smaller amount of more comprehensive insurance."

The Big V is a type of critical illness insurance, cover that pays a guaranteed cash lump sum if the policyholder is diagnosed with a serious health problem covered by the policy. Conventional critical illness insurance covers about 30 conditions - from cancer to heart disease or a stroke - but is expensive. The Big V is much cheaper, but covers only cancer.

Policyholders will in effect be taking a gamble. Between 55 and 60 per cent of claims on critical illness insurance policies are for cancer. By ruling out all other conditions, Virgin Money can offer much cheaper premiums - in return, you limit the circumstances in which you can make a claim.

Still, the savings are substantial. Virgin Money would charge a 35-year-old male non-smoker about £23 a month for £100,000 of cover against cancer. Virgin says the same amount of standard critical illness cover from companies such as HSBC would cost about £50 a month.

The Big V has another innovation. With critical illness, it is not usually possible to claim until your disease has become very serious. Virgin is offering a staged pay-out - policyholders get 10 per cent of the lump sum on diagnosis, a further 15 per cent when the cancer reaches an intermediate stage, and the balance if it becomes advanced. Virgin says this offers policyholders help from the moment they become aware of illness.

So why are insurance analysts so sceptical? Kevin Carr, managing director of Lifesearch, says: "Virgin is only selling this cover direct, so independent financial advisers such as us can't sell it to customers - but even if we could, we wouldn't because we couldn't justify the advice." Carr is concerned that most people buying the Virgin policy would be better off with an income protection policy (see panel).

Jason King, managing director of independent adviser Life Policies Direct, applauds Virgin for innovation in a market that has struggled to win over people who would benefit from cover. But he adds: "There's no advice when you buy this cover, and many consumers will end up with something they don't really understand. Ultimately, in our judgement, this insurance is not good value for money."

King likes the concept of the staged pay-outs. But he says the severity of cancer required for an intermediate pay-out of 25 per cent of the lump sum from Virgin is equivalent to when critical illness insurers would make a full pay-out. "To get the full pay-out from Virgin, it seems to us that you would need to be diagnosed as pretty close to terminally ill," King says. "In which case you'd be better off with a life insurance policy - most pay out on diagnosis of a terminal condition, even before death."

Scott Mowbray, of Virgin Money, rejects these criticisms. "Our policy definitions are identical to the standard definitions laid down by the Association of British Insurers," he says. "There is no one-size-fits-all approach to protection and people need a portfolio of policies."

He also argues that The Big V will get people focused on insurance. "People aren't buying critical illness insurance because it's too expensive - by focusing on the condition that represents 60 per cent of claims we can drive down the cost of cover."

Does your family have the right cover?

There are so many different types of insurance that it is difficult for people to know what their priorities should be with protection products such as life and health insurance. However, while people's individual needs differ - depending on whether they have families, for example, or what benefits they get from employers - most independent advisers believe in a pecking order for protection.

* At the top of the list comes income protection cover, which pays you a guaranteed monthly income if you can't work due to ill health. The cover will pay out for as long as you are off work, up to your retirement age, providing income to keep up with mortgage repayments and other crucial commitments.

* Life insurance is equally important - basic term assurance policies will pay out a guaranteed cash lump sum on your death, which could be used to pay off your mortgage, say, or invested to produce an income for your dependants.

* Only when you have covered these two basic needs should you consider secondary protection, such as critical illness insurance. This pays out a fixed lump sum of cash if you are diagnosed with a serious disease covered under the policy.