Your IndustryOct 17 2013

Conditions covered by critical illness policies

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The Association of British Insurers states that to qualify as critical illness the policy must cover cancer, heart attack and stroke.

In reality, Alan Lakey, senior partner at advisory firm Highclere Financial Services, says critical illness plans go far beyond these three conditions even though they account for around 80 per cent to 85 per cent of all claims.

He points out one plan available at the time this guide was produced included 59 named conditions. Most plans now cover more than 40, Mr Lakey adds.

He also highlights a policy available from PruProtect marketed as ‘serious illness cover’, which extends to 166 conditions. However, the majority of the conditions covered are on a partial payment basis.

Peter Hamilton, head of retail propositions for Zurich, says the Association of British Insurers has produced a statement of best practice with 23 standard conditions.

He argues that this, combined with the fact that the majority of payouts are against the common conditions referred to above - in Zurich’s case these three plus multiple sclerosis represented 86 per cent of claims in the first half of 2013 - means advisers should not necessarily judge policies solely based on a numbers game of conditions covered.

Steve Payne, managing director of protection for Friends Life, agrees, opining that covering a large number of rare and obscure conditions that nobody is likely to claim for is in some ways meaningless.

He says: “Providers should be focused on the quality of an offering, particularly concentrating on the conditions most claimed for, rather than the quantity of rare conditions covered.”

Jennifer Gilchrist, senior product development manager of Bright Grey and Scottish Provident, counters that advisers would often look for less severe illnesses being covered by critical illness policies to provide the most effective protection.

“This is a welcome addition especially if your client is diagnosed with one of these less severe illnesses as there may still be a financial need at this time. Most policies still provide the full amount of cover regardless of less severe illness payments being paid.”

She adds another key factor is that advisers expect critical illnesses covered by a policy to be updated over time with developments in medical science.