Was there ever a product more in need of a bit of good PR than critical illness insurance?
Back in the last century I remember stories of how claims were often turned down. But times have changed. Critical illness (CI) insurers now routinely settle more than nine out of 10 claims: Aegon UK and Old Mutual Wealth both paid out on about 94 per cent of its critical illness claims last year.
However, it seems that many think CI does not pay out so often: a survey last year by Old Mutual Wealth found that 20 per cent assumed CI pays out on no more than 10 per cent of claims.
Cancer is the most common CI claim. I know of two women currently going through treatment for breast cancer.
Even if they recover fully, they will never be the same again, physically or mentally. And there is a huge difference between them. One has CI cover. She has already had a six-figure payout, so there is less pressure on her to return to work to help pay the mortgage. She could give up work totally for a bit and spend time taking care of herself and enjoying her children.
The other one does not have cover. I am sure she has an understanding employer but the chances are that she will have to return to full time work fairly soon after her treatment because her family needs her income. I do not know why she has not got CI. I expect even if she knew about it, she would not have taken it out. Perhaps she assumed it would not pay out when she needed it. Or maybe she could not afford it.
The woman with the cover has a higher income and could afford the premiums – and thus possibly might have a smoother road to recovery than the other.
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Liberation and its pitfalls
A couple of years on from pension freedoms being granted, how are we handling this liberty? More than 37 per cent of drawdown sales are made without taking advice.
The FCA’s review on non-advised drawdown sales found that pension firms were giving customers all the information they needed to make decisions.
However, some are so eager to access their pension funds that they appear not to be thinking about the best home for their money: one that can sustain them throughout their retirement.
The FCA review notes that “some customers appear not to be fully engaging with the information and are therefore potentially putting themselves at risk of harm”.
Harm means running out of money in retirement: easy enough to do if you leave your money in a low-interest rate savings account.
AJ Bell says that two out of five of those exercising their pension freedoms are taking more than 10 per cent of their fund every year, which could mean they run out of money after eight years.
I am not banging the drum for advice here: but surely there is a compelling argument that says that ensuring you get the best retirement income demands some expert help.
Freedom to do what you like with your cash is all very well – but who wants to be scrimping and saving in their eighties because they made a bad decision on their pension years earlier?
As Bob Dylan (aged 76) opined: “A hero is someone who understands the responsibility that comes with freedom”. Yes, I know he was not talking about pensions. But it would be better if more of us were heroic enough to realise we need help with monumental financial decisions.
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Happy 25th birthday
I have high hopes that future generations will be careful with their money.
A report from the Institute for Public Policy Research suggested that all UK-born citizens be given £10,000 when they turn 25.
The payment would be funded by tax reforms and selling off the government’s stake in RBS which could create a fund worth £186bn by 2029-2030.
Being in possession of a child who will be 25 in 2031, I asked him what he would spend the £10,000 on.
Given that he is currently wasting pocket money on Panini World cup stickers I expected the worst. But he said he would save it and put it towards a house. No mention of sports cars or Chelsea season tickets. I think his future pension savings are safe.
Charlotte Beugge is a freelance journalist
