There is only one reason why a life assurance policy would pay out, that being on death within the term of the policy.  Policies will often cover terminal illness and payout before death actually occurs but apart from this death is the main reason why payouts are made.  In other words, if you are diagnosed with a critical illness, a life insurance policy won’t help you straight away but at least you’ll know that you have life insurance in place.

Critical illness insurance policies pay out when you are diagnosed with a critical illness or specified dread disease.  The comprehensiveness of policies can vary but most cover at least 20 standard illnesses including heart attack, stroke and cancer.  These illnesses are usually severe or life threatening but in most cases the sufferer can go on to live for years after the diagnosis.  A critical illness policy therefore takes care of you when you are alive. 

It is fairly obvious then, that life insurance and critical illness insurance are two very different policies but they do complement each other well.  If you had just been diagnosed with a critical illness and you received your insurance claim chances are you would be going through a fairly scary time.  You and your family might just take comfort in the fact that at least  you have life insurance as well.

There is a big difference between premiums for life insurance and critical illness insurance and this is the main hurdle for people to understand.  Life insurance premiums keep on getting cheaper due advances in medical science.  We are living longer and the illnesses that used to be killers are now treatable in most cases so premature death is becoming less likely each year.  Critical illness, on the other hand, covers those illnesses that used to be killers so the premiums are going up all of the time.  Cancer Research say that we all have a 1 in 3 chance of being diagnosed with cancer at some stage in our lifetimes.  It’s perfectly natural for an insurance company to want to increase premiums with statistics like these because it means that they have a 1 in 3 chance of having to make a payout.

So critical illness costs a lot more than life insurance so why then should we have it along side our mortgages?  It goes back to statistics.  The illnesses covered by critical illness policies can be life threatening but but every year that probability goes down due to advances in medical science.  The death rate for cancer, for instance, has dropped by 20% over the last 15 years.  Death rates may be dropping but we are still being diagnosed and in some cases illnesses are more likely due to our current lifestyles.

Critical illness insurance takes care of you while you are still alive.  Being diagnosed with a critical illness usually means that you cannot work during treatment and chances are that you may not be able to return to work in the same capacity after treatment.  During this time you still have to pay your mortgage.  A mortgage is the biggest longest financial commitment people usually make so why risk losing your home because you have been diagnosed with a critical illness?

Statistically critical illness insurance makes far more sense for anyone with a mortgage than life insurance.  People just need to understand why and that it is worth paying for that peace of mind where their home is at stake.

If you have read other articles in this blog you will note that all of the larger insurers are returning similar results where claims are up and rejection are down.  Scottish Equitable said that 41% of claims rejected were due to non-disclosure and the remaining 59% were due to the illness not meeting the required critical illness definition.

Scottish Equitable put this successful turn-around down to working closely with advisers and IFAs to ensure a better understanding of the product.  Hopefully this trend will continue and understanding of this complex product will continue to improve which will, in turn, help people interested in this type of insurance.

Roger Edwards, proposition director at Bright Grey, said: “We need to recognize that a certain segment of the population is using the internet to buy protection without professional advice. This group chooses the Internet-only approach to buy and wouldn’t look to buy in any other way. Until now there hasn’t been a product that offers life or critical illness cover specifically tailored to this group of people, where they can complete the whole process online.

Roger is quite correct.  There are people who just want to do the whole process online without actually speaking to anyone or taking advice but at what cost?  The main reason the insurance companies have launched these sites is due to price comparison sites.  It’s true to say that life assurance has always been a rate driven product.  There is only one reason it will ever payout so the cheapest premium is usually the best product to go for.  You could argue that customer service comes into the equation, which might mean that someone chooses a slightly higher premium based on an outstanding customer service record but most people applying over the internet wouldn’t know which provider had the best customer service.

Critical illness, on the other hand, is not a rate driven product as far as professional advisers are concerned.  The differences in cover between two critical illness providers can be large even though they might both offer the same premium.  Also, customer service and claims settlement history do come into the equation for an adviser when recommending a critical illness policy. 

Critical illness cover has improved over the years and life assurance companies now payout more than ever thanks to an understanding of the product from both advisers and policy holders.  Making critical illness a rate driven product with no advice could potentially damage the good work that has been done.  There could be more cases of insurers not paying out due to non-disclosure at the point of application.  This would only damage the reputation of critical illness and make future sales harder.

From an advisers point of view I would say that critical illness insurance is something that should be advised.  If you are intending on paying premiums for insurance the least you should do is know what you are paying for regardless of what the premium is.

Because of this clarity, Critical Illness Insurance statistics show that more and more claims are now being succesfully paid out.  Legal & General recently revealed that the company paid out on 93% of claims which was an increase of 5% on the previous year.  Statistics like these mean that more people will have faith in critical illness insurance and the companies offering it. Could there be further changes to make critical illness cover even more popular?

One way critical illness cover could go would be in offering a menu driven approach.  Most critical illness companies offer at least 22 standard critical illness definitions yet they all say that heart-attack, stroke and cancer catch the vast majority of claims.  Most people who decline critical illness cover do so due to cost.  Could it be then , that life assurance companies could soon offer the kind of critical illness cover that a customer might actually want?  The prespective customer would simply choose the critical illnesses they do want to be insured for  rather than paying for the illnesses they are not concerned about.  Car Insurance does this now when you first of all choose whether you want third party fire and theft or fully comprehensive insurance.  You can then choose to add benefits such as breakdown cover, windscreen replacement, a courtesy car and other named drivers etc.

The menu approach could mean that critical illness cover gets further exposure and is seen as an insurance that is accessible to anyone rather than those who can afford it.

This is clearly a step in the right direction as far as negative publicity goes for critical illness.  There are still those people who say that critical illness cover doesn’t pay out.  I was reading a story on the internet only two days ago where someone was saying that they had been in hospital and while they were being treated a nurse had said that she had never known of a critical illness policy being paid out.  With statistics like Legal and General’s as well as other insurers, stories like this don’t really stack up.  A critical illness policy is taken out for purpose and it is important that the insurers offer clear defintions as to what is required for a successful claim.  The standardised ABI defintions clearly show that this is the case.

“Our claims history demonstrates that the measures taken to reduce declined critical illness claims are working,” said Bernie Hickman, managing director of protection.  Hopefully this trend will continue over the next few years which will, in turn, restore confidence in this type of insurance.

Stopping smoking for health reasons will be reward enough but your life assurance and critical illness premiums would also decrease too.  Moneysupermarket.com says those who kick the habit could see a difference in their wallets as well as their health; saving on average £8,404 on combined Critical Illness Cover (CIC) and life cover, or up to £1,725 on a single life insurance policy.  This is a substantial amount of money on its own.  Add this to the money saved by not buying cigarettes and suddenly you are far better off each month.

No smoking day should also provide an incentive for those people who smoke and declined critical illness cover when it was offered.  Whenever I have recommended critical illness cover to a smoker and told them that their premiums will drop once they give up smoking, they always decline cover saying that they will arrange cover once they have given up.  To the smoker they feel penalized in that their premiums are so much higher.  To me, smokers are the ones who need critical illness cover most.  What is printed on the sides of cigarette packets is fact, not fiction.  It damages your health and can kill you.  Logic would say that if you wanted critical illness cover but found that it would cost far more because of a habit, you would give that habit up so that the critical illness  cover was cheaper.  Unfortunately most people do not follow this logic,  decline cover and carry on smoking.  To this date I have never had a smoker come back to me and ask for cover.

If you do give up smoking, most life insurance companies will lower your monthly premiums.  This usually after you have not smoked for 12  months.

This follows BUPA and Friends Provident who have also recently dropped their rates.  As a whole, the rates probably haven’t changed that much on average but maybe they have been targeted to a specific age band or occupation class to increase sales. 

 Critical Illness Cover is naturally more expensive than life cover.  The risks of being diagnosed with a critical illness are far higher than dying so this is hardly surprising. Life assurance premiums have been dropping for some time more or less in line with advances in medical science.  Every illness cure leads to a longer life expectancy.  Medical science advances also mean that it is possible to diagnose illnesses and treat them before they become categorized as ‘critical illnesses.’   There may be those who  would argue that they have suffered an illness which nearly met the critical illness definition but they did not qualify for a claim.  This is fair enough but if they have been treated and the illness cured before it reached crtical stage then this is reward enough.

The world is in recession, however, which changes things a little.  First of all people are being made redundant which means that they can’t pay their day to day expenses.  Life and critical illness policies are therefore cancelled.  At the same time there are those people who are afraid of losing their jobs so what spare income they have is being used as savings in case they are made redundant. Then there are those who have been putting it off until some time later when it makes sense to insure themselves (if it doesn’t make sense now, it never will, unless it’s too late to get cover).  There are also those people who see a recession as an opportunity to save money and it is these people who should sieze the opportunity now.

Over the past few months life insurance companies have been issuing statements saying that their life and critical illness premiums are being lowered ever though many of these same companies are also saying that their claims settlement statistics are increasing year on year.  Skandia were the latest provider to issue a statement saying that their life and critical illness premiums would be reduced by an average of 17.5% starting in February.  In January BUPA said that they would be lowering their protection rates.  At the same time Friends Provident said that their life and pensions sales were down by 27%.

Life insurance companies are like any other retail establishment.  When times get tough you have to put a sale on to get customers through the door and this is exactly what is happening to a number of the big insurers.  Getting back to the question as to whether now is the best time to buy cover, yes, there is a sale on if you want to save some money.  Better still, apply for guaranteed premiums so that your savings are reflected all the way through the life of the policy.

If your physician recommends tests or treatments and you don’t “follow the doctor’s orders, you may escape future medical problems, but you may pay the price if you apply for life insurance. We have seen it often in our office where an insurance company declines coverage for an applicant because a prescribed test/treatment wasn’t followed up on (it will show in the physician’s records). Just today a client was declined because his physician suggested he should get an EKG, but the client never received the treatment. The insurance company refused to offer coverage until the test was complete.

The moral of the story – if your physician has suggested treatment for you, follow through with it before you apply for life insurance.