Critical Illness Cover
How does Critical Illness Cover work?
Do I need Critical Illness Cover?
How much could a payout be worth?
How Will Your Application be Assessed?
Some additional options
Is There a Chance That my Insurer Won’t Pay Out?
Additional things to be aware of
Becoming gravely ill is something that few people expect will ever happen to them. Whilst the NHS is dear to many, the topics of poor health and inevitable death remain very much taboo in British culture, especially amongst the young. They are not things that we like to countenance.
Nonetheless, the reality is that despite the reluctance to discuss our fragile mortality and our faith in the ability of modern medicine to heal us, at some point a significant proportion of the population will have to face a serious illness. Research has shown that 1 in 2 people in the UK born after 1960 will be diagnosed with some form of cancer at some point in their life (Source: Cancer Research UK Feb 2015), whilst the fact that we increasingly go on far beyond the biblical expectation of “three score and ten” logically suggests that ever more of us will suffer from chronic serious illness.
Thankfully science has made huge leaps and bounds in the last century or so, and as a result, it is possible to defeat many afflictions that were once lethal and to manage conditions that in the past would have resulted in an almost unbearable quality of life.
Even so, suffering from a critical illness still has the potential to ambush an individual and their family in all kinds of other ways: emotional strain, physical debility and financial damage that can persist long after the event. Long waits for treatment could, if not planned for, result in having to live on a substantially lower income and adopting a restricted lifestyle.
How Does Critical Illness Cover Work?
Critical illness cover is a form of insurance, and hence involves an initial assessment that establishes eligibility and calculates an appropriate level of premium that is paid on a monthly basis. In return, the policy will pay out a defined lump sum should the policyholder be diagnosed with any condition or illness that is included within the terms. Changing life circumstances may have to be taken into account at a later date.
There are two principal types of cover on offer, level term and decreasing critical illness cover. The former means that the sum is fixed for the duration of the policy, whilst under the latter the sum decreases over the period. Decreasing cover is usually intended to protect capital and interest payments on a loan.
Do I Need Critical Illness Cover?
Many of us don’t like to think that anything will happen, but with statistics published in 2014 showing that 83% of cancer patients suffered a loss of income and/or increased costs as a direct result of cancer (source: macmillan.org.uk) it is not an issue that should be swept under the rug.
Critical illness insurance was put in place to ease any financial burden that having a serious illness can generate. If the worst should happen, you and your family could benefit from having a tax-free lump sum which you can use to:
- Cover All or Part of Your Mortgage Payments
- Replace Any Lost Earnings
- Cover Household Bills
- Cover the Cost of Private Care or Medical Treatment
How Much Could a Payout be Worth?
The total value of the sum you will ultimately receive is a function of the level of contribution you make. The sum that you might need varies from person to person and it is worth consulting an independent financial advisor for direction on how much might be appropriate in your case. All that said, typically the figure would be two to three times your annual income.
The financial benefit of a policy can be used for whatever the recipient sees fit. That could be the holiday to Machu Picchu you always wanted to go on, financial security for your family or for more practical items like mobility aids. It is entirely up to you.
How Will Your Application be Assessed?
As you might expect, illnesses that are incurred as the result of certain kinds of behaviour or that are occupational will obviate the policy. These include: crime, drug use, self harm, hazardous sports and aviation.
Similarly, if you work in a risky job or have a familial predisposition to a particular disease, you can reasonably expect to see it reflected in the premiums that you pay.
Consumers should also bear in mind the question of the severity of an illness, as policies are only fully activated once a certain threshold is reached. For example, with cancer this might be stage three or four. In the event that the affliction is moderately severe, policies may pay a percentage of the full sum.
Critical Illness cover is not a panacea for all kinds of ailments, but is designed as a responsive to a specific set of diseases.
Typically, the following conditions are covered:
- Heart attacks
- Kidney Failure
- Coronary artery bypass surgery
- Major organ transplants
- Multiple Sclerosis
Other conditions may include:
- Aorta graft surgery
- Loss of limbs
- Benign brain tumours
- Motor Neurone disease
- Terminal illness
It is worth reiterating that it is vital that each critical illness cover product is looked at on its own merits, as generalising is an extremely dangerous game. Some people assume, for example, that any condition that prevents them from working must qualify.
This is not the case. Stress, back pain, broken bones; the impact of none of these would necessarily be cushioned by a critical illness policy.
Some Additional Options
An additional consideration concerns whether to take out a life insurance policy, as in many cases there is a clause that you must survive the diagnosis of your condition by at least 14 days. By creating a life insurance policy as well, customers can be confident that their loved ones will not be left to fend for themselves. Normally this occurs little to no extra cost to the premium.
Another possible proviso is the ability to add your children to the policy. In the unhappy event that your offspring become seriously unwell, a policy might also contribution a maximum of £25,000 to defray some of the expenses that might be incurred by taking time off work or paying for medical treatments. Like adding life insurance, this often adds no additional cost to your own policy.
Is There a Chance That my Insurer Won’t Pay Out?
All insurance is based upon a compact of honesty and trust between policyholder and provider that each will hold up their end of the bargain. The policyholder must fully disclose accurate and relevant information to the insurer when signing up for the policy.
With critical illness cover, that might encompass areas like prior medical history and if the individual is experiencing any symptoms that might be associated with a serious illness.
Doing otherwise might be reasonably counted as fraud, just as taking out house insurance days before the property burns down would also be viewed with legitimate suspicion.
That being said, you should not think that being honest will increase the cost of your policy, as often this is not the case. In any event, shopping around is by far the most effective way of making sure that your critical illness cover is most cost effective. It is important to remember that there are a host of insurers out there competing for your money, and that this factor is strongly in your favour.
There have been some high profile cases where insurance companies have failed to pay out, although this is relatively rare. One prominent example was that of Nic Hughes, who died from cancer of the gall bladder in October 2012. His provider, Friends Life, declined to fulfil the terms of the policy on the basis that he had not furnished them with all of the facts, citing that he had not mentioned suffering from some loss of sensation and occasional pins and needles. This was despite his disclosure that he suffered from Ulcerative Colitis and that one of its well known associated symptoms is the aforementioned numbness and tingling.
For a while it seemed that despite the weight of both medical and public opinion being on their side, the family would get nothing. Eventually, though, Mr Hughes and his family were vindicated in April of this year when the FOS ruled that Friends Life was wrong to cancel the policy, with the insurer agreeing to pay out the £100,000 lump sum specified in the policy, as well as interest.
The government has now gone some way to addressing this issue by bringing in the Consumer Insurance Act that compels insurance companies to ask questions about any reason they may have not to pay out. In effect the act means that insurance companies will only be able to reject paying out when a customer “deliberately and recklessly” submits incorrect information.
Additionally the Financial Ombudsman Service (FOS) examines complaints made and acts as a trade body to ensure that consumers are protected.
Whilst the ordeal that Mr Hughes and his relations went through was horrific, his case and others like it are very much anomalies in an area of financial services where companies are sensitive to the emotions of their consumers. The facts do not support the idea of a predatory pirate industry that seeks to exploit the vulnerable.
For example, Aviva recently announced that they had paid out 93.5% of life insurance , critical illness cover and individual income protection policies claims totalling nearly £500 million pounds in 2012, including £131 million for critical illness. Only 1.7% of the latter claims were declined for non-disclosure.
Another company, the unusually named Bright Grey, issued payments for 93% of claims in 2012. Only 4% were rejected for non-disclosure, whilst the average pay out was £73,000 and the youngest recipient just 19 years old.
Additional Things to be Aware of
As is always the case with any product or service, it pays to spend a little time comparing different providers in search of the best offering. Sometimes businesses will attempt to pressurise consumers into buying critical illness cover as part of a package when taking out a mortgage, something often done by banks and estate agents.
With the new consumer act in place and a vigilant Ombudsman, the regulation of critical illness policies has been strengthened. It should also be said that, as is borne out by the statistics above, it is in the interests of the insurance companies to hold up their end of the bargain.
If the big insurers were seen to be looking to avoid paying legitimate claims, the concept as a whole would become utterly discredited. To this end, the ABI (Association of British Insurers) acts as an in-house policeman and any provider that you consider should be a part of this body.
Consumers are not expected to be medical experts. So long as they act in good faith and with common sense, they can expect their provider to fulfil the terms of the policy with a minimum of fuss.
You must, however, make sure that you scrutinise the terms of any prospective policy in detail. Although there are commonalities across many critical illness cover products, there are also differences in the fine detail that can ultimately prove so significant.
One of the most unpleasant aspects of serious ill health is how suddenly it can strike, seemingly without warning. Sometimes it seems odd, perhaps unfair, that a person who has watched their diet, exercised and avoided health risks like smoking can fall ill, whilst another person who has drank, smoked and generally courted danger can live to a ripe old age totally unscathed.
It is, however, possible to ensure that the consequences of an unanticipated disease are limited to the extent that you need not worry about managing to pay the mortgage or having to take an extended period of time off work, by taking out critical illness cover.
Although the modern welfare state goes a long way to prevent people from falling into poverty, opting for this kind of policy will, at worst, give you extra peace of mind and go uncalled upon. In other circumstances it could make the world of difference to you and your family.
This article was written by Steven Keogh