Chief Points About Critical Illness Cover By Sheila Challiner At Isnare.com Ezine Articles

The chief financial regulator expressed its concern a few years ago that thousands of policyholders did not know what their policies covered nor how they. Those fears still remain true.

The Financial Services Authority said that research showed that providers, including financial advisers, supermarkets, insurers and banks often made no effort to find out if the cover was appropriate and little explanation was given to customers of how policies work. While most firms were working to adhere to higher standards, others carried on offering a poor service.

In the event that heart disease, cancer or other specified life-threatening illnesses strike critical illness cover pays out a lump sum. Often, it is people who are concerned about paying off loans or mortgages if they should be unable to continue working, who buy these policies.

There are two kinds: those with a guaranteed fixed premium each month and those where the monthly payments increase over time. Figures from the Association of British Insurers (ABI) suggest that, in total, there are in excess of 5m policies covering 12m people. An average policy will pay out £67,000.

These "protection" policies have proved controversial. While they might be beneficial, these "protection" policies have proved controversial and critics allege that not many people make claims. There is no data available on the number of claims made vis-à-vis the total premiums paid. The FSA review did reveal, however, that on average, 25 per cent of the claims made are refused.

In one case recently, a policyholder was diagnosed with cancer but medical teams could not specify which one. The claimant was informed it was unlikely doctors would know for certain until he was dead.

Until a diagnosis was available, his insurance company would not pay out. The claimant’s family appealed realising that should he die, the company would pay out a life insurance policy worth 15,000 pounds rather than the critical illness policy which was worth more than 80,000 pounds. Only one policy can pay out. The argument with the provider caused added stress to the claimant. After a public fight, the insurer gave in and paid out on the policy for critical illness.

Which?, previously known as the Consumers' Association, said it thinks the situation is much more serious than the FSA claims and that sales of critical illness cover are at the centre of a far-reaching mis-selling scandal.

Mick McAteer, principal policy advisor, says finance companies, brokers and commission-hungry advisers, saw a chance to make huge profits. He said Which? had predicted the mis-selling that was seen in the pensions industry would be replicated in the protection business.

"Protection policies, by their nature, are complicated and the advisers selling them are often putting their commission before the needs of their clients."

His comments are on the back of complaints in parliament regarding the mis-selling of protection policies. Lorely Burt, the Liberal Democrat MP for Solihull, says the FSA study reveals there is a high risk that policies are being sold to consumers who do not understand what they are buying or who don’t even need them. She wants rule changes that would limit sales to financial advisers working under strict guidelines.

Mick James of Standard Life agrees that people need to be aware of the different insurance options rather than just opting for critical illness cover. Many people appear confused about why they want this kind of policy. Instead of just concentrating on the lump sum payout, they should question the reason they need such a policy because with many illnesses, especially types of cancer, the treatment can last for years which means that the money from the payout might run out quite quickly. It could be that an income protection policy or indeed family income benefit offers more economical premiums and pays out for a longer time period.

This article is continued under the headline: Look At The Small Print When Buying Critical Illness Insurance

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