As a brief reminder, the idea with critical illness cover is that it will pay out a lump sum (usually) in the event of diagnosis of a number of serious illnesses.



Critical illness cover is purchased for a variety of reasons, with the main ones being to cover a mortgage loan (both personal and business) and for family protection purposes.

Unlike straightforward life assurance, which pays out on death, critical illness cover includes a great deal of small print that you need to research BEFORE you purchase cover. The QUALITY of the cover is one of the most important elements, not price. Unfortunately, many policyholders purchase on price alone and may be blind to what they are actually covered for.

The acid test comes when you make a claim.

Let's take a look at some figures from two of the major critical illness providers; Scottish Provident and Legal & General.

Scottish Provident

From January - June 2008:

- they paid £51.6m in claims

- had 703 claims submitted

- 87.3% of these claims were successful

- the average payout was £73,423

- the largest claim value was £552,487

- the average age of a claimant was 44

- the average time a plan was in force prior to a claim was 73 months

Of the 102 unpaid claims (12.7%):

- 87 were declined as the illness did not meet Scottish Provident's critical illness definition

- 15 were declined due to the discovery of material non-disclosure at the time the plan was taken out

- 80% of the £51.6m was paid out for claims for cancer, heart attack and stroke. There were 40 claims under children's benefit, where the payout totalled £782,423.

Under the cancer claims, £8.8m was paid out for breast cancer, £2m for bowel cancer and £1.5m for prostate cancer.

Other successful claims were for benign brain tumour and angioplasty.

Legal & General

For the whole of 2008:

- they paid £146m in claims

- 93% of all claims were paid

- only 4% were declined for non-disclosure

- £146m was paid in claims

- the average claim was £70,000

- over 2000 claims were paid in total

- the highest payout was £550,000

It is crucial that, when you apply for cover, you disclose ALL your known medical details on the application form. For example, Scottish Provident declined a claim from a 39-year-old under the heart attack definition as, at claim stage, his medical records indicated that he had a long history of stress and depression with alcohol, drug detox and overdoses. Had these been revealed at application stage, critical illness cover would have been declined.

Interestingly, the Association of British Insurers (ABI) has issued guidance on non-disclosure and treating customers fairly. Some providers may consider a proportionate amount of a critical illness claim if they consider the non-disclosure to be negligent and they would have still offered the cover at outset if the full facts had been known.

The Financial Tips Bottom Line

Critical illness cover is a key cover and should be considered as part of any sensible financial plan. Not having cover in place could seriously impact upon you and your family's lives in many ways.

The KEY is to make sure you not only work out how much cover is required, but you also analyse the small print of each plan on the market as well as finding out more about their claims history.

ACTION POINT

The starting point is to find out whether or not you need any critical illness cover. If you do you then need to:

- work out how much cover you need

- take any existing cover into account

- review the existing cover to ensure it is competitive

- decide which type of plan you need (term, whole of life etc)

You can either do this yourself or employ the services of an expert who can take the time to explain all the options available to you and help you choose the right cover.

Whatever you decide, just make sure you take action!