At Investment Sense we spend a lot of time ensuring that your savings and investments are working hard for you; however it is sometimes worth thinking about what happens if things don’t quite go to plan with your health.

This is where Critical Illness Cover can be very useful.

As you probably know Critical Illness Cover pays a one off lump sum if you are diagnosed with a specified illness or require an operation covered by the policy.

The sum assured and term can be decided upon by the person taking out the cover, which can be arranged on a level or decreasing basis, depending on the need.

It would be fair to say that over the past few years Critical Illness Cover has had a bad press, which has put off some people considering this type of cover.

We are always going to be honest in our views, which is that Critical Illness Cover should be considered by all and is an important part of your financial planning.

Given the way some people feel about Critical Illness Cover we thought we would address some of the myths about this type of insurance.

“It never pays out”

Many insurers publish their claims history and the information they provide shows that the majority of claims are paid.

Figures given by AXA show that during the period September 2008 to August 2009 93% of all Critical Illness Claims were paid (Source: AXA).

Further information provided by Scottish Provident:

January 2009 – December 2009

Total claims paid: £93,854,664

Number of claims paid: 1,236

Average payout: £75,934

Largest claim: £849,228

Average age of claimant: 46

Source: Scottish Provident

Scottish Provident paid 91.3% of all claims made on Critical Illness policies in 2009; paying out in excess of £93 million in claims (Source: Scottish Provident).

Aviva’s claims history is similar, in the period January 2010 to June 2010 93% of Critical Illness claims were paid; 6% were declined due to the illness not meeting the definition and 1% due to non disclosure. During that time in excess of £51 million was paid out in claims (Source: Aviva).

“The insurer will do everything they can to avoid paying a claim”

This is simply not true, we have already seen how AXA paid 93% of claims in the period September 2008 – August 2009, in fact they only declined eight claims; three for non disclosure and five for the claim not meeting the definition.

The claims for non disclosure do raise a valuable point. When applying for any insurance all questions should be answered truthfully; for example that sneaky cigarette with a drink on a Friday night, you really do have to own up to it. Those few pounds you put on at Christmas, disclose it on the application.

“The policies don’t cover many illnesses”

Each insurer covers a core list of illnesses including the most common of which are heart attack, cancer, stroke and multiple sclerosis.

These illnesses make up the bulk of claims; in 2009 62% of all claims paid by Scottish Provident were for cancer.

For the protection of policy holders the definitions insurers must use are set out by the ABI (Association of British Insurers), however many insurers go further and offer a definition which is more comprehensive than the ABI standard. For example AXA and BUPA offer cover for 10 illnesses which is above the minimum required by the ABI.

However the list of illnesses covered is generally far wider, for example Fortis Life cover 40 separate illnesses, AXA, BUPA, and Legal & General each cover 38 (Source: Defaqto).

In addition many providers are now starting to offer extra benefits in the form of fixed payments, which are assessed separately to the main list of illnesses covered. For example, if a dependent child contracts a serious illness or if the insured person is in hospital due to an accident. Alternatively fixed payments are being used where the insured is ill but the illness is not deemed critical, for example low grade prostate cancer. The amount of the fixed payment varies between contract and provider and is not generally linked to the sum assured.

“I’m too young to be taking out this sort of cover”

It is certainly true that the older you get the more likely you are to be ill; however, the claims history published by the insurers show that it is not ‘elderly’ people that claim the most on these types of policies.

Figures produced by Scottish Provident show that in 2009 the average age of the person claiming for the most common illnesses was below 50:

Illness Average age at claim
Cancer 46
Hear attack 48
Stroke 48
Multiple Sclerosis 39

Critical Illness Cover is for all, irrespective of age, and remember the younger you are when you buy it the cheaper it is.

“It’s not worth the cost; I never get ill, it’ll never happen to me”

This might be true, if it is you are definitely one of the lucky ones.

According to the British Heart Foundation someone suffers a heart attack every 2 minutes in the UK, strokes are also widespread with more that 250,000 people in the UK living with disabilities caused by strokes (The Stroke Association 2008) and everyone knows someone who has had cancer.

“It’s too expensive”

It’s true, insurance can be expensive and everyone needs to make a decision what they insure, we all insure our cars, our home and its contents, many of us insure our lives but few take out cover to protect us if we are ill.

However, the cost does not have to be expensive, for example to provide £100,000 of Critical Illness Cover over a 15 year term would cost in the region of £38 per month for a non smoking man aged 40; the cost for a female of the same age would be almost identical.

The sum assured can be set so that the premium is affordable, as some cover is always better than none.

“Price is the most important thing when I’m choosing who I’ll take the policy out with”

Further information provided by Aviva:

January 2010 – June 2010

Total claims paid: £51,122,568

Number of claims paid: 684

Average payout: £74,740

Average age of male claimant: 45

Average age of female claimant: 42

Source: Aviva

Price is definitely a factor when considering the most suitable insurer; however it is only one part of the equation.

If you are paying for insurance, it should be as comprehensive as you can afford, that is where looking at what illnesses the insurers pay out for is important.

All providers of Critical Illness insurance cover a core range of illnesses, some however go further than the definition laid down by the ABI. There is then a range of illnesses covered in addition to these core conditions, it is important to look at these to ensure that you get cover that is right for you and is as comprehensive as possible.

Not all policies are the same, for example BUPA is the only insurer to cover type 1 diabetes and angioplasty (Source: Defaqto).

As with all forms of insurance you have to make a decision what is right for you and whether you want to commit hard earned income to such a policy.

Hopefully you will never need it, but it can certainly provide peace of mind for you and those dependent on your income should you ever become seriously ill.

Next Steps

Whether you have an existing policy or are thinking of taking our Critical Illness Cover our advisers are here to help.

We use a wide range of insurers and will take time to discuss with you your needs, any existing policies that you may have and your budget, before we produce a recommendation based on your specific requirements.

If you would like more information on this type of protection then do not hesitate to contact us on 0845 074 7778 or email info@investmentsense.co.uk