Take steps to address your critical illness cover

JUST consider how your family might cope if you were struck down by a critical illness. It is not something anyone wishes to contemplate and yet the incidence is sadly all too high. Critical illness can strike anyone at any time, which means insurance is vital. “Americans would expect to have this protection as a matter of course,” says Roland Oliver of Oliver Asset Management. Yet more than 55 per cent of the UK population has no cover in place.

Perhaps it is a taboo subject, or perhaps we think critical illness is something that only occurs to others. A worrying 30 per cent admit they would be forced to cut back drastically on their living costs if the main income earner was not able to work.

If critical illness – or CI for short – occurred, could you afford to take time out of employment or pay for expensive medical treatment? The aim of insurance cover is to pay out to help anyone who is diagnosed for any one of a range of conditions.

CI does not just affect the elderly. A quarter of cancer cases are diagnosed in those under 60 years and some 100,000 multiple sclerosis cases occur in the 20-40 age group. Smokers are particularly vulnerable – lung cancer kills around 35,000 annually.

Every year, 146,000 Britons suffer a heart attack, 52,000 of whom survive and need help afterwards. Nine out of ten cancer patients suffer a loss of income or have higher living costs as a result of their diagnosis. Yet far more of us insure our possessions or our pets than ourselves. Do not restrict CI cover to adults – children are the fifth most common claimants.

Aspire Wealth Management’s Alex MacLean compares CI to car insurance. He says: “You want a good organisation with a comprehensive policy and no risk of not paying out.” He recommends asking your adviser to ensure you are not doubling up cover with a policy in force through an employer.

Ask your independent financial adviser about a so-called Holloway contract, named after Victorian MP George Holloway, who devised a scheme to offer income protection, but which would also make a small but useful lump-sum payout. The premiums will be higher but the investment aspect could be a carrot to continue with such protection.

John Mortimer at the Muirfield Partnership in Edinburgh says that if you already have cover in place, “be very careful about replacing it with newer cover”.

He has had experience of a client who has been protected since 2003. A claim arose four years later, but it was thought the client may not have been covered, as most of the policies at that time excluded that condition. Mortimer says: “It turned out that the older policy did provide cover and six-figure sum was paid out, which allowed the mortgaged debt to be cleared with money left over.”

Mortimer says that while the circumstances in which such claims are paid out are sometimes tragic, it is gratifying to know that a client can have the necessary financial assistance.

Depending on the insurance chosen, once a CI diagnosis named in the policy is confirmed, either a lump sum will be paid or a monthly benefit will commence. In some fields – such as a stroke or cancer – although life threatening, a permanent full recovery can be made, depending on the severity.

However, a return to work may not be possible or the individual most consider a restricted work capacity on a lower salary. Permanent incapacity which rules out a return to work – arising from blindness, brain tumour or limb loss – could mean not only a struggle to repay a home loan but also funding day-to-day living costs and the extra expenditure of home adaptations and buying medical advices. This is also where CI cover is vital.

“CI is an area of protection which is often disregarded by clients owing to the increase in costs relative to just life assurance,” says Scott Mackintosh of Edinburgh Investment Consultants.

He suggests everyone thinks in terms of “fully comprehensive” rather than “third party, fire and theft” for themselves. “CI really has to be factored in to financial planning and future wellbeing,” says Mackintosh.

Oliver likes the modern approach taken by some insurers. Prudential, for instance, “aims more for a partnership”. It offers incentives in its cover, such discounts on gym membership.

Look, too, at the help CI insurers will give if you should need to claim. Bright Grey has a “helping hands” assistance scheme. Willie Crockett at Edinburgh Risk Management recommends L&G, LV= and Zurich for individuals. He says: “It is definitely an area of cover that is under bought but should be high on the agenda.”

Check the range of illnesses cover by a policy. Decide on the deferment time before payment (such as 13, 26 or 52 weeks), if premiums are fixed or renewable and if they increase with age. Remember to reveal any pre-existing conditions or otherwise a later claim may be invalidated. An actuary needs to properly assess the risk and if in doubt over revealing any ailment, make sure nothing is omitted.

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