Being covered for illness can prove critical

THE post-boom mood of caution is driving demand for insurance policies that pay out in the event of serious illness, as more people focus on protecting their assets.

As consumers suffering the effects of the downturn switch their attention to bolstering their financial security, advisers report that inquiries about critical illness insurance are picking up. More people are broaching the subject of long-term protection insurance without any prompting from advisers, reflecting low confidence in the economy and a renewed focus on being protected financially.

Protection insurance expert Kevin Carr, managing director of Kevin Carr Consulting, said: "Concerns around job security and the overall financial wellbeing of the family are becoming a higher priority for many people. Protecting what we already have is a sensible approach as a kind of post-boom mentality sets in."

Critical illness insurance pays a tax-free lump sum on diagnosis of a range of serious illnesses or in the event of disability.

Only 20 per cent of homeowners have critical illness cover, according to Scottish Provident, leaving the majority at risk of financial difficulties should they be diagnosed with an illness that forces them to stop work. Cancers, heart attacks and strokes account for more than three-quarters of all critical illness claims, but medical advances mean people are being diagnosed earlier, are more likely to survive and so are more likely eventually to resume working.

One factor inhibiting the level of take-up of critical illness cover is the difficulty that those previously diagnosed with a serious condition have in securing affordable insurance. Those with pre-existing conditions have generally – but not always – had those conditions excluded without the cost being cut accordingly, but that is beginning to change.

Aviva last week said it would now allow people with some pre-existing medical conditions to pay lower premiums if their condition was excluded from the policy.

The group, which is introducing premium reductions when cancer or multiple sclerosis exclusions are added to one of its critical-illness plans, joins Axa, Bupa, Fortis, LV, Legal & General, and Zurich in allowing the option. Pressure is growing on the rest of the industry to follow suit.

It is estimated that 15 per cent of critical-illness and income-protection policies have conditions excluded, but only now is the reduced comprehensiveness of the policy being reflected in the cost of those plans.

Matt Morris, senior policy adviser at protection adviser LifeSearch, welcomed the development.

"For people with health issues, it makes a big difference, so the development makes sense and is the right thing to do," he said.

The extent to which premiums are reduced varies depending on the applicant, although Aviva and Axa have maximum reductions for men of 10 per cent and 28 per cent respectively.

On that basis, a 45-year-old man taking out 100,000 of critical illness cover over 15 years with Axa would pay a premium of 64 without the cancer exclusion and 46.09 with it. The same man taking out that cover with Aviva would pay 63.70 without the exclusion and 57.33 if cancer were excluded from the conditions on which he could claim.

Similarly, some insurers now offer severity-based protection, where the seriousness of the diagnosed condition determines the sum that is paid out.

"If you are diagnosed with an illness that is both on the list of conditions covered and also meets the definition, then all of the money is paid out," Carr explained. "But if your condition is not on the list, or even if it is, if the severity does not meet the definition, you don't get anything."

Under severity-based cover, however, PruProtect uses a scale ranging from 10 to 100 per cent depending on how serious the condition is, and has a list of illnesses stretching to more than 150, compared with the more conventional 30 or so. Carr used breast cancer as an example. He said: "Early-stage cancers where a lumpectomy or mastectomy is required are not covered by traditional policies as the cancer is not invasive. However, severity-based cover would pay 25 per cent of the sum assured."

Axa, Royal Liver and Skandia are among the insurers taking a similar approach. However, there is unlikely to be any significant difference in premiums compared with other providers, as exclusions are more likely.

Marathon man hit the ground running after heart attack

COMING as it did just weeks after he ran the 2009 Edinburgh marathon in three hours and 13 minutes, Willie Munro's heart attack was a bolt from the blue.

The marathon was in May but by July, 49-year-old Willie found he was unable to run more than a third of a mile before experienced pains in his chest that forced him to stop.

"I then did a 150-mile bike ride and realised I was not quite OK, so I went to the GP and discovered that I had actually suffered a heart attack," Willie explained.

After an operation to clear a blocked artery Willie, a social work manager in Glasgow, spent eight weeks off work. However, the diagnosis sparked fears about his health and with a wife and two children – 13 and 17 – to support, Willie's thoughts turned to the potential financial implications.

Four years ago he had taken out a critical illness policy with Scottish Provident for peace of mind, and decided to claim on the insurance in the wake of the diagnosis.

"It was a great boost," said Willie. "The heart attack turned our lives upside down for a while and the money from the policy helped give us peace of mind financially."