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Why is critical illness cover so expensive?

"When people say that CII (critical illness insurance) is too expensive: in comparison to what?


The CII sale usually comes on the back of the life insurance sale, so most people will probably compare it to this, but is that fair?


Consider the fact that a life insurance policy only pays out on one event - death - and the average age of this event is 75. Whereas CII pays out on diagnosis of around 32 critical illnesses and the average age of claimants is around 40.


Meaning that, in theory, CII would actually payout 35 years earlier than life insurance on average. With such a comparison it would seem that it is life insurance that is expensive and not CII. Obviously, we do recognise that CII is out of the reach of many people and the price is high for those that really need it: those in their forties. The older someone is when they take it out, the more expensive the product is....."


Quote from Dr Marius Barnard the 'creator' of critical illness insurance policies.


Why should people buy critical illness cover?

Personal debt in the UK is rocketing. We have a total of 200bn non-mortgage related debt in this country. And increasingly households are relying on two incomes to sustain the standard of living; a standard of living that would be shattered if one income suddenly disappeared.


At the same time medical advances mean more people are surviving what were once seen as terminal conditions - although not necessarily in a state to return to work. For example these days 75% of all stroke victims survive but 60% of stroke survivors are left with a disability. Critical illness insurance pays a cash sum to the insured if he or she is diagnosed with a listed condition during the policy term.


What conditions are typically covered by critical illness policies?

Inevitably the exact terms and conditions of specific CI products vary from provider to provider but CI products typically cover the following conditions:


Heart Attack - The death of a portion of heart muscle as a result of inadequate blood supply to the relevant area.


Bypass Surgery (Coronary Artery) - The undergoing of open chest surgery for the treatment of a blockage of two or more coronary arteries with bypass grafts (CABG).


Stroke - Any cerebrovascular incident producing neurological sequel lasting more than 24 hours and causing infarction of the brain tissue.


Cancer - The presence of one or more malignant tumours characterised by the uncontrollable growth and spread of malignant cells and the invasion and destruction of normal tissue.


Kidney Failure - Chronic irreversible failure of kidneys to function as a result of which either regular dialysis is instituted or a renal transplantation is carried out.


Major Organ Transplantation - The undergoing as a recipient of a transplant of a heart, lung, liver, kidney, pancreas.


Multiple Sclerosis - Where a person's immune system attacks the normal tissues of the brain and spinal cord, incapacitation an individual.


Aorta Graft Surgery - The undergoing of surgery to correct any narrowing, aneurysm of the thoracic or abdominal aorta. Narrowing of Aorta of congenital is excluded.


Primary Pulmonary Arterial Hypertension - Is a condition of high pressure in the blood vessels in the lung caused by leaking blood vessels.


Paralysis - The complete and permanent loss of use of both arms or both legs or one arm and one leg, through paralysis caused by illness or accidents persisting for at least six months from the date of illness.


What exclusions are typically imposed in critical illness cover?

Again, different providers will have their own terms and conditions, but intermediaries and advisers should be aware that the following are likely to be on a list of exclusions:


Any critical illness for which care, treatment, or advice was recommended or which was first manifested or contracted before the start of the Policy Period, or for which a claim has or could have been made under any earlier policy.


Any critical illness diagnosed within the first 90 days.


Death within 30 days following the diagnosis of the critical illness.


Presence of HIV/AIDS infection.


Treatment arising from or traceable to pregnancy or childbirth, including caesarean section, birth defects.


War, invasion, act of foreign enemy, terrorism, hostilities (whether war be declared or not) civil war, rebellion, revolution.


Naval or military operations of the armed forces or air force and participation in operations requiring the use of arms or which are ordered by military authorities for combating terrorists, rebels and the like. Any natural peril.


Consequential losses of any kind, be they by way of loss of profit, loss of opportunity, loss of gain, business interruption.


After diagnosis, how soon would a benefit be paid?

Of course this will depend on the insurance provider, but 14 days after the specified illness being diagnosed is a good guide.


Must policyholder pay tax on their benefits?

Payments under CI products in the UK are completely tax-free under current legislation.


Are there restrictions on what policyholders can use the benefits for?

No. Policyholders are free to chose how they use payouts. Commonly the cash is used to meet mortgage repayment responsibilities, pay other bills, or even for funding further medical treatment.


Are policyholders entitled to anything back at the end of the policy?

Critical illness cover is not an investment or savings policy. Clients cannot cash-in the policy as the product will only pay out on specific events during the term of the policy.


Are products available to cover children's critical illness benefit?

Yes. Some policies make provisions that would cover children for the listed conditions, while they are between three and 17-years-old, provided the policy is in-force. The benefit on such protection is generally around 25% of the adult payout.


As with adult claims, the child must survive for 28 days following the date of diagnosis of one of the specified critical illnesses. For the most part, where it is applicable claims for children do not affect the client's cover.


Source: Health Insurance & Protection

All T&F Informa UK Limited.