How important is critical illness cover?
With one in every five critical illness claims for breast cancer now could be the time to make sure you have the right protection.
Most home buyers purchase life assurance when they arrange a mortgage, but only a minority obtain another form of financial protection that they are five times more likely to need before they reach retirement.
Critical illness assurance pays a tax-free lump sum on diagnosis of any one of a list of serious illnesses – including cancer and heart attacks. Claims statistics suggest you are five times more likely to suffer from one of these than you are to die before you reach 65.
The good news is that medical advances mean more people than ever are surviving conditions that might have killed earlier generations. For example, more than 90pc of men diagnosed with testicular cancer are still alive five years later, while more than 80pc of women diagnosed with breast cancer have the same survival rate, according to the Office for National Statistics.
Critical illness cover can provide cash to allow people to pursue a less stressful lifestyle while they recover from illness, or use it for any other purpose. But 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, according to a survey by Axa.
But with one in every five claims for critical illness cover for breast cancer, and about 46,000 people diagnosed each year, now is the time to make sure you have the right protection.
Critical illness is relatively cheap and, on the face of it, relatively straightforward. You insure a fixed sum at the outset – usually the outstanding balance on your mortgage – this is paid out on the diagnosis of one of the 30 or so conditions listed on the policy.
But why do very few woman have this protection?
This cover has come in for repeated criticism in recent years as many consumers have complained that insurers rely on complex medical definitions to decide who does and does not get a payout. To be fair to insurers, most have clearly listed the exact nature of the conditions covered in the policy terms and conditions. But to the average healthy consumer, terms such as "in situ carcinoma" or "pre-malignant or non-invasive cancer" are nearly meaningless. Most simply assume that if they have bought a policy it will pay out if they have cancer.
If you bought the policy from an independent financial adviser, they should explain that they only cover certain conditions, and that these conditions have to be of a specified severity to qualify for a payout.
Kevin Carr, spokesman from PruProtect, said: "Breast cancer is covered by critical illness policies, but many policies exclude 'early stage cancer' which is when cancer is considered to be non-invasive. Breast cancer may be considered 'early stage' even if a lumpectomy or mastectomy is required and therefore many insurers will not pay out. The other main exclusions are for certain types of prostate and skin cancer."
However, he said that there are a few insurers such as PruProtect, Axa, Royal Liver and Skandia who look at cases on a severity basis and will pay anything from 10pc to 100pc of the sum assured, depending on the condition.
Prudential takes a slightly different approach with its "serious illness" policy. It will make reduced payments to those with less severe types of breast cancer and other conditions typically not covered on a standard critical illness policy. Those buying a critical illness policy have the option of renewable or guaranteed premiums.
The latter are more expensive, but you know payments will remain level throughout the life of the policy – which may run for 20 years. Renewable premiums may be lower, but prices could rise if, for example, new screening methods result in more claims.
Mr Carr said: "Critics of this system say that it is too confusing for customers, but we disagree. When you break your wing mirror on your car, your car insurer does not pay out the total value of your vehicle. Our system is basic common sense."
Many insurers will have a detailed guide to the illnesses and conditions covered, which will be written clearly. Ask to see this, as well as the document setting out the policy's key features, benefits and exclusions.
Most people buy critical illness cover when they take on a major financial commitment, but it's important not to buy the first policy offered – shop around.
It also pays to start young when premiums will be relatively cheap, rather than leaving it until later in life when the price of cover will start to rise substantially.
Matt Morris, policy adviser at independent financial advisers LifeSearch, said: "Once you take out a critical illness policy, it is not usually worth making any changes to it and you have to be very careful when switching critical illness policies. But if you do, it is crucial you never cancel an existing policy until a new one is in place."
Survivors of cancer who want to take out this type of cover need not pay more than they have to, as Bupa, Fortis, LV= and Zurich will cut a client's premium if they exclude cancer from a policy.
There are more than 200 types of cancer, according to charity Cancer Research UK, and one in three people will develop some form of cancer during their lifetime.
Michael Whyte, chief underwriter for Aviva, said: "Critical illness and life policies are the type of policy nobody wishes to
need to claim against, yet evidence shows that these are vitally important policies that can support families and secure their financial wellbeing during the worst of times."
need to claim against, yet evidence shows that these are vitally important policies that can support families and secure their financial wellbeing during the worst of times."
October is Breast Cancer Awareness Month. To make a donation to Cancer Research UK, call 08701 602040 or send a cheque to: Cancer Research UK, PO Box 1527, Oxford, OX4 9FG
