Critical Illness Cover

I WAS CONSIDERING making further comments on the ‘B’ word, but I just can’t bear it any more. So, to cheer myself (and our lovely readers) up, I decided to write about Critical Illness Cover (CIC). Having lost two of my favourite clients to cancer in the last 6 months, and having another one in the later stages, it seems appropriate.

For those who don’t know, this is a type of insurance that is designed to pay out a lump sum if you are diagnosed with a life-threatening illness such as cancer or heart disease. The proceeds are tax-free and can be used as you wish: paying a lump sum off your mortgage, alterations to your home, enabling you to stop or reduce working, or buying private medical care.

Cancer accounts for almost two-thirds of claims, followed by heart attack, stroke and multiple sclerosis. It is important to remember that CIC only covers the conditions laid out in the policy and no others; also that there can be degrees of severity that do not trigger a claim. This is as a result of the good news that medical advances mean that more people than ever are surviving conditions that might have killed earlier generations. For example, more than 90% of men diagnosed with testicular cancer are still alive five years later, while more than 80% of women diagnosed with breast cancer have the same survival rate, according to the Office for National Statistics. Other conditions that are often covered include: multiple sclerosis, Parkinson’s disease, kidney failure, motor neurone disease, and permanent loss of vision/hearing. The list typically covers 40 to 50 conditions.

Whilst I am a big fan of CIC, it is important to ensure that your monthly expenses are covered in the event of any accident and sickness which stops you from working; and when you have a limited budget, it is vital to address the issue of Income Protection insurance first. Few of us can last for more than a few months without our regular income. It is worth checking what benefits you have through your employment. Most employers will offer some form of sick pay, some offer life assurance, and a few include critical illness cover – so check carefully. Home buyers often purchase life assurance when they arrange a mortgage, but only a minority obtain any other form of financial protection that they are much more likely to need before they reach retirement!

It is a sad fact that women tend to be particularly under-insured in this area: half of women in Britain have no life assurance, critical illness cover or income protection, and a quarter rely on their partner’s policies instead. But with one-in-every-five CIC claims being for breast cancer (about 45,000 people are diagnosed each year) this is a significant imbalance. The impact to a family of the inability of a spouse (whether earning or not) to perform their role is very often overlooked. Only when a crisis happens does the problem become obvious.

Critical Illness Cover has come in for criticism in that insurers rely on complex medical definitions to decide who does and doesn’t get a pay-out. To be fair, most clearly list the exact nature of the conditions covered in the policy terms and conditions. Furthermore, if you buy the policy through an Independent Financial Adviser they should explain that the policy only covers certain conditions and that these conditions have to be of a specified severity to qualify for a pay-out. Many policies exclude ‘early stage’ cancer which is when cancer is considered to be non-invasive. Breast cancer can be considered ‘early stage’ even if surgery is required, and therefore some insurers will not pay out. The other main exclusions are for certain types of prostate and skin cancer and very mild heart attacks. That said, recent figures show that 92.2% of all Critical Illness Cover claims were paid, with over £1 billion getting paid out in total, the best of the insurers paying 95% of the claims submitted to them. According to Cancer Research UK, there are more than 200 types of cancer, and one-in-three people will develop some form of cancer during their lifetime.

On that happy note, I’ll say farewell, until the early summer.

David Foot

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