Critical Illness Cover (CIC) pays you the lump sum insured, which is tax-free, if you are diagnosed with a life-threatening illness which renders you incapable of working.
People are living longer with conditions which might have been a death sentence a decade ago, thanks to advances in medicine and treatment.
Insurers are finding that while life assurance claims are dropping, they are having to honour more and more claims on CIC policies. The result of this is that the cost of CIC is becoming a lot more expensive than life cover. If the number of CIC claims fall then inevitably the cost of premiums will fall too.
The cost of Swiss Life and Legal and General's CIC has risen by around 20 and 25 per cent respectively. But the likes of Norwich Union and Scottish Equitable far outstrip them in the price rise race with increases of up to 60 per cent. Other providers are looking to charge more for CIC as well as the market speculates over the definition of 'life-threatening illness' and medical science makes giant strides in the management and control of certain conditions.
The Association of British Insurers has looked at cover for prostate cancer and heart problems, for example. If these illnesses are discovered early on they are no longer deemed to be 'life-threatening', at least for some sufferers. Another example is diabetes. Currently BUPA is the only insurance provider which still allows this condition on its list of critical illnesses covered.
Kevin Carr at broker LifeSearch explains, "Although this type of insurance was originally known as 'dread disease', many of the conditions currently covered by critical illness policies are becoming quicker and easier to detect and treat. Hence insurers have recently found themselves paying out on claims where the condition was not life threatening, which isn't the purpose of the policy."
A CIC policy usually runs for an agreed term, for example tied in with the length of time on a mortgage, and there is no change in the premiums. The premiums are expensive for this cover. Insurers are now looking to offer reviewable policies where both the illnesses covered and the premiums paid are revisited every five years, which should cost a good bit less.
Rye Mills, group director of the independent financial adviser division of Liverpool Victoria, reckons that more people will choose the reviewable policies as they become considerably cheaper than the guaranteed cover. As he says, "At the end of the day there's a price to be paid for the peace of mind a guaranteed policy gives."
Legal and General still offers a guaranteed CIC but has put its premiums up for that. It has launched a reviewable policy as an alternative. Scottish Widows and Skandia no longer provide guaranteed CICs.
Ronnie Martin, protection director at Legal and General, explains, "The reviewable price will be typically [around] 15 per cent lower than the guaranteed cover."
An existing guaranteed CIC policy cannot be altered to redefine any illnesses which are currently classed as 'life-threatening' but which may not be in that category in the future. So if you have one of these already and are happy to pay the premiums you don't have to worry.
If you are planning to take out a CIC policy expect to pay less for a reviewable policy. But if you want the extra peace of mind a guaranteed policy offers, get it quickly while there are still some around, and remember you'll have to pay the extra price.
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