Critical illness insurance pros and cons
When you sign up for a new mortgage, the last thing you want to be thinking about is paying out even more each month just in case you get seriously ill.
Likewise, the last thing that parents of a new baby want to consider is the possibility that their precious child might get seriously ill and need medical treatment beyond the scope of the NHS or the family budget.
These are the classic “don’t want to think about that” situations.
Is insurance worth it?
At the end of the day, this is the key question. Will you be paying out another £50 or so a month for a benefit you’ll never use?
The truth is, it will only turn out to have been “worth it” if the worst situation arises: a serious diagnosis. So it’s not something you ever want to be proved right about.
All of this makes life insurance, critical illness or income protection insurance a very difficult idea to approach.
Brokers and independent financial advisers – who after all stand to make a commission on all the insurance policies they sell – nonetheless find these very difficult conversations to initiate.
They know that the people who DO consider this kind of insurance most willingly are the ones who have personal family experience of the benefits.
Will it pay out when I need it?
Many people are distrustful of insurance in general: they have a belief that there’s always some fine print that will allow the insurance company to wriggle out of a payout.
What counts as a “critical illness”? Medical conditions are much more clearly defined these days, so you can be clearer from the outset what you would be covered for.
And with the pressure of social media exposure, insurers are much more wary of the bad exposure that can come with being seen as cold-hearted and unsympathetic.
Out of 100 life insurance claims, only three are rejected each year, according to Lion insurance.
In 2011, 11% of critical illness claims were rejected, according to the Association of British Insurers.
Some of these will be claims that come under the umbrella of “I don’t think I’m covered, but it doesn’t hurt to give it a try.”
The main reasons for claims not being paid out:
- the illness specifically isn’t covered
- it’s not severe enough (eg deafness in just one ear)
- the cause of the illness (eg drug or alcohol abuse, or attempted suicide)
- deliberately withholding relevant information when you took out the policy
- not having the right medical documents
The good-news stories
It’s hardly good news to need to claim on critical illness insurance. But for those families who debated the pros and cons of taking it out, and decided to commit to it, it is good news to receive a lump sum payout that pays off the mortgage, or buys the most advanced medical treatment, or allows a couple not to have to think about going to work during treatment.
How to make the decision
We’re reluctant to do things we feel negative or fearful about. Trying to persuade yourself, or your partner, just by looking at alarming health statistics, or the history of illness in your family, is not going to make you feel more positive.
Other ways of approaching the question:
- Are you the sort of person who worries about things outside your control? Would this kind of policy give you peace of mind?
- Do you come from the kind of family that expects to pitch in if anyone hits a problem? Are you confident that your parents or siblings (or children) would support you (and would be able to do so)? In which case, critical illness insurance may not be for you.
- Does it help to look at this as just a sensible and responsible thing to do (like having the house insured, or checking the tyre pressure before a long journey).
Questions to ask yourself
Before diving into the details of the different kinds of cover offered by different companies, ask yourself:
- What do you feel counts as a critical illness?
- Which illnesses are you most concerned about?
- If you were unable to return to your old job, would you consider it reasonable to do another type of work?
- Would you hope for a lump sum payout (critical illness insurance), or ongoing income support (life insurance), or a combination of both?
Advantages and disadvantages of critical illness cover
- If your specified condition is covered, the policy is intended to pay out on diagnosis, whenever it happens.
- The payout is tax free.
- You can choose the range of conditions and coverage that you get.
- Critical illness insurance is more expensive compared with conventional life insurance cover.
- You will need to provide medical evidence, and possibly have a medical examination, if you want extensive cover or you’re not currently in good health.
- It is complicated comparing different policies, which is why it’s useful to consider your priorities first, and to get expert advice.