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Why critical illness cover is more useful than ever

Payout rates are on the up, so can you and your family afford to go without this vital form of protection?

Can critical illness policyholders be confident their insurers will pay out if push comes to shove?

That is the question many people ask themselves when they are thinking about what kind of protection insurance to buy.

With life insurance, claiming is straightforward and generally the only reason an insurer may refuse to pay out is if the death is the result of gross negligence on the policyholder’s part.

But life insurance, clearly, will only pay out if the very worst happens, whereas serious medical problems for a main earner can leave a family just as desperately short of cash. This is where critical illness cover can step in.

Payout rates on the up

The good news is that critical illness payout rates are improving as a result of changes in the industry.

Providers are now obliged to be much more clear about how they define certain illnesses, and the circumstances under which they would not pay out.

Insurer Legal & General says it paid out almost 92 per cent of critical illness claims in 2010, a proportion which has increased every year since 2006.

The firm stresses that customers should ensure they disclose any information that could be deemed relevant when they apply, as non-disclosure is one of the most common reasons claims are rejected.

If you are in doubt about whether a piece of information about your health or lifestyle is relevant, it is best to pass it on. You should also ensure that details of your family’s medical history, as well as your own height and weight, for example, are accurate.

How does critical illness insurance work?

Critical illness (CI) is an insurance policy that pays out a lump sum or a regular income if the holder is diagnosed with any of a pre-agreed list of serious illnesses, such as certain types or stages of cancer, multiple sclerosis, heart disease or stroke.

It is likely to be more expensive than life insurance, given that people are more likely to claim; individuals often take out both types of cover alongside each other.

The size of your premiums will depend on:

· How long you want to be covered for: this may only be for the duration of your mortgage, or until your children have left home.

· Your age: the older you are, the more likely you are to make a claim and the more expensive insurance will be.

· Your and your family’s medical history: if you have any pre-existing medical conditions, your policy is unlikely to cover them; and you will also need to tell your insurer whether there is a history of any particular illness in your family.

· How much cover you want.

Critical illness cover in action

CI insurer Legal & General has shown how valuable the protection can be by publishing details of two claims on the cover.

One customer Mrs Downs, claimed on her critical illness policy and received a payout within a matter of weeks.

Mrs Downs says: “I found out I had breast cancer late last year through a routine screening. It was a shock to hear the diagnosis and we didn't immediately think of the money side of things or how our finances might be affected.

“A family member reminded us to check if we had critical illness cover, and it was lucky we did because I wasn't eligible for sick pay and did not end up having any money coming in for six months. Whilst our mortgage wasn't huge, we did manage to pay it off with the proceeds from the policy which took a significant weight off our mind.”

Mrs Downs adds that the claims process was professional and painless. “We’d definitely recommend critical illness cover to all our friends and family now, because you just never know.”

Another customers, Mrs Williams took out a critical illness policy on the advice of her independent financial adviser following a divorce.

In February 2007, Mrs Williams was diagnosed with breast cancer. As her condition was covered under the critical illness definition of her policy, Mrs Williams received a payout of £70,000 plus interest.

This money allowed Mrs Williams to pay off her mortgage.

She says: “When I was diagnosed with cancer I wondered how I would cope. Then I remembered that I had a critical illness policy but my friends and family told me that the insurance company would never pay out enough money to pay off my mortgage.

“However, it was very straightforward and I got a lump sum paid to me after eight weeks, plus interest backdated to the point when I had made the claim.”

· The names have been changed to protect customer confidentiality.

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Chris Torney

Chris Torney

Chris is personal finance editor at the Daily Express. He's been a journalist for more than 10 years and contributes to a wide range of finance and business titles.Read more from Chris



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