Things were tough for Glenn Charles following the financial crisis in 2008. The 47-year-old helps run a family business, the Cherry Tree Home Bakery in Lisnaskea, County Fermanagh and, looking for ways to cut outgoings, he considered cancelling his £100-a-month critical illness (CI) policy. He eventually decided against it – a very fortunate decision based on what was to come.
Ten years previously, he and his wife Janice had taken out a joint policy to cover their mortgage in the event of one of them suffering a serious illness.
Then, in January 2018, Glenn was diagnosed with cancer of the oesophagus after a routine checkup. It was a hammer blow to the couple, who have two young children. As he is self-employed, Glenn was concerned about how they would cope financially. One of his first calls was to his broker, who quickly confirmed that he could claim. The money – which would clear the mortgage – was in their account within five weeks.
“When you look at critical illness cover from my side of the hedge, it is a no-brainer,” says Glenn. “But I’ll admit there were times when I seriously considered cancelling it. It was a lot of money every month when we were cash-strapped in the downturn. A cancer diagnosis is one of the most stressful and frightening things you can experience. Knowing my cancer could be removed and that my insurance had paid out so my family was secure were the two things that helped me sleep at night.”
In the past, horror stories about critical illness cover – with insurers refusing to pay out when a diagnosis didn’t fit the rigid terms of a policy – led to some scepticism about its value. But for those who have had to claim, that value is clear.
The policies pay a tax-free lump sum on diagnosis of any of a list of about 100 specified serious illnesses, including cancer, heart attack or stroke, or certain disabilities. The benefits can be life-changing.
Cover is costly, however, and premiums rise steeply with age, so buying young is preferable. A 35-year-old non-smoker wanting £200,000 life and CI cover over 25 years would pay £64 a month with insurer Aviva.
In contrast, for a person aged 50 needing the same level of life and CI cover over 15 years, the lowest premiums start at about £160 a month with Scottish Widows. A smoker of the same age would have to pay almost £300 a month for the same protection – again with Aviva. Premiums are guaranteed, so will not rise over the term of the policy.
One way around the high cost is to compromise, says Alan Lakey of Highclere Financial Services. “You could get cover for 50% of your mortgage. The monthly premium is more affordable and some level of safety net is better than nothing.”
While price comparison websites have made it easier to search and buy cover quickly, policies vary considerably in their terms, conditions and exclusions.
“It might be that you have a family history of a particular illness – breast or prostate cancer for example,” Lakey says. “You will want to choose a policy which has the most generous cover in that area. By getting advice, you can target insurers that best suit your needs. The point at which a claim can be triggered can vary widely between insurers.”
Disputes over some payments have tarnished the image of CI cover, but Emma Walker of insurance broker LifeSearch says providers have worked hard to improve their definitions of the conditions covered, particularly with regard to heart attacks and strokes.
Around 92% of critical illness claims are paid, according to the Association of British Insurers, and this rises to 96% for cancer claims.
If you have had a policy for a number of years and your health has not changed, it may be possible to get a new plan with better terms at a lower cost. But no one should ever cancel existing cover before speaking to a specialist broker. Some older plans may have better terms on some types of cancer, for example.
“Policies have improved vastly, with providers increasing the number of conditions covered and increasing the clarity around definitions of illnesses,” adds Walker. “It is a complex market, and consumers will want help to navigate around it. But to ignore cover over fears that it might not pay out is a mistake.”
What you (and they) need to know before taking out cover
• Fully disclose your medical history when buying a policy. To be sure, get a copy of your notes from your GP. Insurers will refuse to pay if it emerges you had a previous condition (even unrelated) that you did not declare.
• Age and state of health make a big difference to the cost. Anyone with a pre-existing condition, smokers and vapers, and those with a high body mass index will usuallytend to pay more.
• If a close family member died at a young age (under 40) from certain cancers, such as breast, ovarian and bowel, this can mean higher premiums. A family history of multiple sclerosis (diagnosed before age of 40) also concerns insurers and can lead to a refusal. Speak to an expert broker.
• Policies are usually to cover a mortgage. Level-term cover means the payout remains the same for the term, typically 25 years; reducing-cover means the payout decreases over time as the mortgage debt shrinks. Couples should consider separate policies. They cost more, but with a joint plan cover for both partners ends with the first claim.
• Many insurers provide cover for any children of the policyholder until they’re 18 at no extra cost. A typical payout might be 25% or 50% of the sum assured on diagnosis.
• Think about writing a will when taking out critical illness protection. A life insurance plan can be written in trust (in your will) so that the money goes to your loved ones after your death, instead of into your estate (and probate).