Critical-illness cover can ensure peace of mind

Certain serious conditions may not kill you, but the time off work can put an intolerable strain on your household finances. Maryrose Fison reports

Few people go to the doctor expecting to come out diagnosed with a life-threatening disease or illness. But rising levels of obesity coupled with high cancer rates mean this is increasingly becoming the reality for Britons.

The latest figures from Cancer Research are shocking. Around 298,000 new cases of cancer are diagnosed every year in the UK with more than one-third of people developing some form of cancer during their lifetimes. Prostate cancer rates have tripled over the past 30 years and breast cancer rates continue to climb with almost 40,000 new cases diagnosed in 2008 and more expected this year.

But while many people equate disease with death, more often than not serious illnesses result in periods of incapacity, with medical costs and time off work placing a pressure on household finances and jeopardising mortgage repayments. Financial planners warn that it is essential for individuals to consider how to protect themselves.

"Now more than ever, consumers really need to look at getting themselves covered against critical illnes," says Louise Oliver, a certified financial planner at the Chesterfield-based chartered financial planning firm Taylor Oliver. "It might seem like an extra burden when personal finances are already stretched but the potential impact of having to take time off work to recover from, or be treated for a serious illness is likely to make a far bigger dent in people's pockets.

"People tend to think more about life assurance initially, not critical illness insurance. But generally people don't just drop dead; they tend to get very ill and then die. It's during that time when an illness can be a real strain on the household and you find that people are stressed and more likely to die due to lack of income."

Yet in spite of the startling medical statistics, the number of people protected against critical illnesses with insurance policies has shrunk substantially in recent years. The latest figures from the Association of British Insurers reveal that policyholders have fallen by 20 per cent over the past decade from 536,000 in 1999 to 430,000 last year.

It may not be the cheapest type of protection on the market, but overall maximum amounts of cover assured per year have risen steadily, meaning a policy can become a godsend in times of difficulty. But with multiple products on the market, industry experts say it is as important to select the right policy as it is to have one.

Fixed or renewable

There are two main types of critical-illness insurance policy available on the market: fixed policies, which offer a guaranteed premium that will not change as long as a policyholder has it, and renewable policies which have a temporary guaranteed rate that is subject to change after a review at a future date.

Kevin Carr, chief executive of the Protection Review, warns against looking at only the headline figure when deciding on a policy.

"Renewable policies will be cheaper to start with, but it's worth not forgetting that they can go up significantly after a review," he says. "It's fundamentally important that people don't just look at policies based on which is the cheapest because they can vary considerably both in the range of illnesses they cover and the level of cover they provide."

Illnesses covered

Another big consideration when deciding on the best policy should be the scope of protection offered. While most products will cover a range of conditions, the range and exact definition of illnesses can vary enormousl from provider to provider. Cancer coverage can be a defining feature, with many providers only covering later-stage or more advanced forms, while others exclude some types completely. With all manner of conditions covered from Creutzfeld Jakob Disease to loss of speech and third-degree burns, finding the most appropriate cover is not for the fainthearted.

"Finding the right policy can be a minefield," says John Stewart, a director of PMI Independent Financial Advisers. Consumers need to watch out for exclusions: "There are a lot of skin cancers that will not pay out because for some providers the cancer has to be considered invasive to qualify. Similarly, with heart attacks, if they are minor some providers may not pay."

Legacy policies

It can also be better to hold on to an old critical illness insurance policy than take out a new one. Advances in medicine have led insurers to tighten criteria and Mr Stewart warns against snapping up a new contract without reading the conditions. "If you've got an existing policy you should generally aim to keep it because definitions of illnesses have got worse, meaning new policies tend to be less atttractive than old ones. If people need more cover then they should top up, rather than get rid of their existing policy."

As the rate of life-threatening illnesses continues to rise and employers become more stringent on sick-pay rules, considering a critical-illness insurance policy could be one option that pays dividends in the future.

Case Study

Andy Hanselman, 47, Manager of a business development consultancy

Andy Hanselman received a £400,000 payout from his critical-illness insurer after a triple heart bypass.

When Mr Hanselman visited his doctor in the spring of 2003 he expected to have a routine check-up and be told to go on his way. Instead, he was referred to his local A&E department to have a triple heart bypass operation.

An exercise enthusiast, Mr Hanselman had spent the previous summer cycling 300 miles around Vietnam as part of a fitness challenge. He remembers the day he learned of his heart condition was a shock.

But having insurance meant he did not have to worry about paying for the three months off work that he would need to recuperate from the operation. As he had been paying £100 per month on two policies set up six years ago, his £400,000 payout more than covered the time out of work, giving him peace of mind as well as financial security at a difficult time.

Not having to worry about being out of cash was a blessing, Mr Hanselman recalls. "It was not an easy time for us but knowing that the policy would cover the period I was out of work was a great relief."