According to a recent survey* only a startling 12% of the working population has some form of critical illness cover yet public awareness of these policies is extremely high. Clearly, something is preventing people from considering this valuable form of cover. Many people instantly dismiss such policies as they believe they are either too expensive or they will simply never pay out. By addressing these issues, I hope to prove they are worth considering and that there are indeed many good critical illness contracts available.
I find that consumers tend to only consider critical illness plans when reviewing their other financial needs such as a mortgage and therefore it’s not something they will have initially budgeted for. Secondly, many customers (and advisers) will make the mistake of only considering protecting the entire mortgage or nothing at all. This is where price can indeed become an issue as protecting a whole mortgage may indeed be beyond the budget of some. However, there is nothing wrong in simply considering an appropriate level of cover within a desired budget to help with the strain caused by you or someone within the family suffering a critical illness. For instance choosing a level of cover that will help with covering the cost of living and potential medical expenses for a set period of time could make an enormous difference.
Historically, many people dismiss such plans as they believe they will never pay out as insurance providers will look for excuses to renege on the contract. Nothing could be further from the truth. According to data recently released from Zurich most providers in 2010 paid out on just over 90% of all critical illness claims made. The 2 main factors stopping this from being almost 100% was customers attempting to claim for an illness not covered under the contract and secondly for withholding crucial information on the original application form otherwise known as non disclosure. An example would be a smoker seeking cheaper cover by stating they were a non smoker on the original application form. As an advisor I would have a duty to request that all questions are answered as truthfully as possible to prevent non disclosure and to clearly point out what exactly is covered under critical illness contracts. This in turn should give customers greater confidence that understand what exactly the policy is covering and that in the event of a legitimate claim, it will be upheld.
Critical illness contracts are also becoming more competitive. Over the last few years the number of illnesses covered has increased significantly according to statistics released by the research company Defaqto. The average number of illnesses covered in January 2005 was 27 which as of May 2011 had increased to 36. In addition, many providers have widened the definitions of many of the illnesses covered which in turn might increase the probability of a policy paying out. Many policies also come with children’s critical illness cover offering a certain % of cover based on the main policyholders plan. In additional several contracts now offer severity based cover whereby a certain sum or % of the main plan will be paid out in the event of less severe critical illnesses. As an example, BUPA will pay out 12.5% of the main policy to a maximum of £12,500 in the event of mastectomy or low grade prostate cancer whereas many plans would simply not cover them at all.
Getting advice when researching into these plans is paramount and here at AGA mortgages we can guide you through the process to help find a good suitable contract that is comprehensive whilst meeting your specific needs and within a desired budget.
*Survey conducted by Scottish Widows in May 2011