Critical illness insurance

A recent statement from the Association of British Insurers – a sort of trade federation for the companies that insure our homes, cars and lives – raises an important issue about the way critical illness insurance operates.

You never know when a serious medical condition will hit

Critical illness insurance, which can be purchased on a stand-alone basis, or added as part of a life insurance policy, is there to provide a lump sum payment if the insured person becomes very ill as the result of a life threatening condition.

The problem (well actually, it is a good thing, in the wider context) is that the medical profession is getting better at treating people who suffer from conditions that five or ten years ago were most certainly “critical”. This means that insurance companies have to redefine precisely what is, or is not, a critical illness..

All about words?
This is not simply a matter of semantics; it is a question of making sure that consumers fully understand precisely what they are buying – and where they stand in the case of a claim.

According to industry news service FT Adviser, about half of all critical illness claims are declined, leading to a massive number of complaints to the Financial Ombudsman Service. This is in nobody’s interests, particularly the insurance companies, who have to spend time and money in dealing with the issue. They would far prefer that everyone understood what cover was available and how far it goes.

An industry-wide consultation
The ABI is, therefore, consulting widely on a new definition of “irreversible life-changing disability” which, it believes, will make matters far clearer. The point is that greater clarity can be achieved by abandoning the term “critical”. Like so many others in any profession, this term was originally industry shorthand (jargon, if you wish to be less charitable) for a range of conditions that were generally thought to be likely to accelerate death and, therefore, bring about a financial need to which the industry could respond.

The new term has the merit of being both flexible and clear. After all, many forms of cancer may be seen by the majority of people as “critical”, in that they will have a devastating impact on the individual and his or her family for some time; but they need not necessarily be life threatening, given proper treatment.

Adopting the terms “irreversible” and “life-changing” it is clear that what is covered will change through time, reflecting improving medical treatment.

... the right insurance can help you cope with the wider financial consequences

Cover that changes – is that fair?
If the intention of insurance is to help people get over the financial consequences of misfortune, then this approach most certainly is fair. There is no point in having insurance that pays out simply because a particular named illness strikes, if that does not bring about financial consequences for the individual concerned. Well, you could have such cover, but it would be far too expensive, so few people would bother.

Insurance is to help people in times of financial need; for investment and capital growth, there are far more appropriate vehicles.

Hopefully, the consultation will ultimately result in greater clarity for everyone. It is not a question of insurance companies trying to wriggle out of making payments, but a matter of ensuring that affordable and appropriate cover is available to those who need it.

Have you reviewed your personal protection insurance? If not, now might be a very good time to do so.

It is important always to seek independent financial advice before making any decision regarding your finances. For further information, please contact SDB Strategic Planners Ltd.

NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND. 

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