Your IndustryOct 17 2013

Critical illness policies today

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Just as the product has always done, critical illness policies today pay out a sum of money that can be used to pay off the mortgage or provide financial support during a period of being unable to work due to ill health.

Put simply, Steve Payne, managing director of protection for Friends Life, says a critical illness policy provides financial security against the risk of an individual suffering from the most common serious illnesses that can change your life.

Alan Lakey, senior partner at advisory firm Highclere Financial Services, explains the policies pay out a tax-free lump sum or regular payment upon diagnosis of a covered illness or disability, or upon undergoing a designated operation or treatment.

The conditions covered by a critical illness policy will vary among insurers, though Peter Hamilton, head of retail propositions for Zurich, says most include common cancers, stroke, heart attack and multiple sclerosis.

According to Mr Hamilton, the amount paid out depends on how much cover included under the policy and, in some cases, on the severity of the condition as an increasing number of policies include ‘partial payment’ cover for a range of less serious illnesses such as non-invasive breast cancer.

Payouts can range from 10 per cent upwards - as an example, Zurich’s pays out the lower of 20 per cent or £15,000 - and mean that full potential cover can be significantly higher than the original sum assured - under a policy from LV= up to 200 per cent of the sum assured can be claimed.

The ABI has defined 23 standard conditions that can be covered by a critical illness policy, according to John Wilkinson, UK protection director of Aegon.

He says most insurers now cover far more than the 23 standard ABI conditions, with policies covering 40 plus conditions now common in the market.

Jennifer Gilchrist, senior product development manager of Bright Grey and Scottish Provident, says most policies these days also provide financial assistance should a policyholder be diagnosed with a less severe form of an illness, such as an early form of cancer.

Ms Gilchrist says: “Examples of these illnesses are ductal carcinoma in situ or low grade prostate cancer. Comprehensive cover in the market will normally provide over 40 illness definitions including critical and less severe illness cover.”