Critical Illness Insurance. Critically Important Time To Take Cover
Back in 1999, the Imperial Cancer Research Fund stated that one in every three people in Britain will be diagnosed with cancer at some point in their life. With rapid medical advances the chances of survival from a major illness are improving but the consequences of suffering such an illness continue to be substantial and life-changing.
Critical illness insurance policies are designed to help you cope with the changes which will be necessary should you be diagnosed with a “qualifying medical condition”. Most policies will pay out following a diagnosis of heart disease, cancer, stroke, renal failure, paralysis, major organ transplant and coronary artery bypass surgery as well as a range of other conditions. There is normally a one-off tax free payment which is intended to assist you with costs, typically the need to adapt your home or car or maybe re-train for a different occupation. It’s not only the bread-winner that can benefit from this type of cover and you should take account of child care and housekeeping costs which would be involved should Mum be out of action.
Unfortunately, at a time when most people are suffering from the shock of learning that they have been diagnosed with a critical illness, they and their families may learn some additional disturbing news. The insurance industries latest figures show that, on average, around a quarter of all claims are rejected!
As soon as a claim is made, the insurance company will request a huge amount of information from your doctor. It’s quite likely that much of this information is not relevant to the illness for which the claim relates. The insurer is using this information to ascertain whether or not the insured has been completely truthful on the original insurance application form.
The reason for this is what the insurers call non-disclosure and if any medical information has been omitted, they can use this as grounds for refusing the claim.
It appears that the non-disclosure may not be related to the critical illness. Claims have been turned down for various reasons, including the case of a woman with breast cancer whose case was rejected because she hadn’t listed treatment for depression on the original proposal form.
The rejection rates are shown as follows:
Company % of rejected claims
Scottish Equitable Project 28%
Norwich Union 26%
Friends Provident 25%
Legal and General 22%
Standard Life 20%
Scottish Widows 18%
Scottish Provident 11%
Scottish Equitable Guardian 10%
Despite the insurers claim that these rejections are perfectly legal, the Law Commission appears to think differently. There has been a consultation document published recently and the Commission makes the statement “It is possible for an applicant to act reasonably and honestly and yet still fail to meet the duty of disclosure.” The conclusions of these consultations will be reported on as soon as they are available.
It is therefore extremely important that when applying for this very valuable form of insurance, you disclose all previous illnesses. It’s probable that if you have to claim, then your medical records will be thoroughly examined and if the insurers consider you omitted medical information, they may “throw out” the request.
Compare companies for the best rates. Read the small print. Spend some considerable time in listing medical conditions. Relax – it may never happen.
Critical Illness Insurance – Another Scam?
Unless you have substantial savings, even in the UK, contacting a serious illness, such as cancer, can be a very costly affair. Above all, not only do you need to consider how contracting such a critical illness will affect your savings in any medical care bills, but you also need to consider that you may well not be able to earn any income to cover you day-to-day expenditure. As a result, making sure you take out a critical illness insurance may well be one of the wisest and astute financial decisions you make.
What Is Critical Illness Insurance?
In short, a critical illness insurance policy is very much like any other insurance policy you take out. Here, however, your premiums go towards insuring that you do not contract a critical illness. In the event that you do contract a critical illness, your UK insurance provider will pay you out a tax-free lump sum to help you cover the day-to-day costs of having to live with your new medical condition.
Are There Any Limitations With Critical Illness Insurance?
Yes; it is essential that you look at the list of critical illnesses that your insurance policy covers, as these will be the only illness under which the policy will pay-out. In other words, the UK insurance provider will not pay-out on the policy simply because you have a doctor’s certificate that you have a critical illness, it needs to be one of the designated critical illness.
Moreover, if you are considered by the UK insurance provider to be a high risk – for example, if you smoke – then it is likely that either you will not be able to obtain the critical illness insurance, or your insurance premiums will be significantly higher than if this were not to the case. Importantly, you will need to disclose whether or not you have any existing conditions, in which case these will likely not be included, and whether or not your family has a history of the illnesses set out in the policy, in which case this will likely affect your premium payments.
How Will I Be Paid?
As mentioned, with a critical illness insurance your UK insurance underwriter will pay you out a lump-sum tax free amount once you contract one of the critical illnesses listed in the policy. Having paid out the lump-sum amount, your relationship with the UK insurance provider will come to an end. In other words, you will not have an ongoing relationship with the insurance provider paying you intermediate payments.
Is It Worth Having Critical Illness Insurance?
The question of whether or not there is any value in you having a critical illness insurance will depending largely on your age, expenses, and whether or not you have any other insurance. Essentially, critical illness insurance covers an area for which other types of insurance can be obtained. However, unlike other types of insurance, this is a very specific insurance policy paying out for a very specific purpose. That said, there is a strong argument that you can never really have too much insurance and will numbers seemingly showing that more and more of us contracting critical illnesses as we grow as an aging population, this type of UK insurance is always useful.
Critical Illness Insurance – The Press Are Giving Insurers A Hard Time.
Recent stories in the press have again lambasted the insurers over critical illness insurance. The core problem is that a critical illness claim is not as straightforward as, for example, a claim under life insurance. With life insurance it’s going to be hard for the insurance company to argue that you’re not dead!
By their very nature, critical illness claims are much more complicated. The insurer will need to satisfy itself that the claim is validated in three key areas before it meets the claim: –
Has the illness been correctly diagnosed?
Is the confirmed illness included in the schedule of insured critical illnesses covered by the policy?
Did the policyholder fully disclose their medical history and current state of health on their original application form?
On the first point, it’s obviously in the policyholder’s interest to verify the medical diagnosis – so there’s rarely ever any conflict between the insurance company and the policyholder on that issue. It’s the next two areas which the insurer needs to validate, where conflicts seem arise.
With constant development in the medical knowledge, from time to time there can be some situations where validation falls into a grey area – a policyholder will argue that their specific illness is insured whereas the insurer will argue that it isn’t. Insurance companies are aware of this problem and they often change the wording in their policies in an attempt to clarify the scope of the cover and eliminate areas for dispute. Nevertheless, disputes do happen all too frequently and sparks fly when a policyholder thinks his illness is covered but the insurer disagrees.
A case in point comes before the Courts shortly. Mr. Hawkins from Staffordshire is suing Scottish Provident for £400,000 under the terms of his critical illness policy. Basically, his medical advisers believe his illness is insured whereas the insurers’ medical advisers disagree. If the Court find in favor of Mr. Hawkins the press will have a field day – and the critical illness insurers will suffer further bad press they can sorely afford.
Another summons, filed recently in the High Court and again involving Scottish Provident, highlights the problem when an insurer considers that a claimant mislead them on his or her original application form. Our understanding is that if an applicant omits relevant information or provides misleading information on their application from, this amounts to obtaining insurance on false pretenses. This summons has been issued on behalf of Thomas Welch from London who is suing Scottish Provident for £206,800. The issue goes back to 2000 when, a few years after first starting his critical illness policy, Mr. Welch received confirmation that he was suffering from testicular cancer. The insurer refused the claim because of “non-disclosure alleging that Mr. Welch had not been honest about his smoking habit. He does admit that he did smoke earlier in his life but is resolute in saying that he had long since given up when he applied for critical illness insurance. As such, Mr. Welch believes that he did complete the application honestly.
We assume that the case will center upon whether Mr. Welch accurately answered the smoking questions on his application. Most insurers define “a smoker” as someone who has smoked, or has otherwise used, nicotine products within the previous 5 years. (Some insurance companies adopt a 1year cut off.) If Mr. Welch had indeed smoked during the specified years, he would have been obliged to disclose such information on the application and the insurer would have priced his insurance accordingly. In this context, it is relevant to note that smokers are charged as much as 65% more for critical illness over than non-smokers. We anticipate that Mr. Welch’s lawyers will argue either that he did not smoke during the period in question or he omitted the smoking information by pure oversight and in any event, his past smoking is not irrelevant to his testicular cancer. Interesting issues and we’ll let you know the outcome.
Mr. Hawkins case is fundamentally different. It illustrates the problems that can arise if policy documents imprecisely describe an illness or if the technical diagnosis of an illness provides the scope for medical professionals to disagree. Either way the issues are entirely outside the policyholders control at a distressing time for them and their families and we must appreciate their anguish. The long-term solution must lie in improving the medical definitions within the policy. It is probable that this will result in more medical jargon that the average man in the street will find difficult to understand – but perhaps that is preferable to what Mr. Hawkins is going through.
Mr. Welch’s court case must stand as a clear reminder to everybody that applications for insurance must always be totally accurate and completed in good faith. We recognize that in some cases this may still leave room for dispute (and Mr. Welch’s case may be an example), but if an applicant fails to complete the forms accurately, they are taking the great risk and any claim they make could be rejected.
Rightly or wrongly, the newspapers have a history of giving the insurance companies a hard time, casting them as heartless big business. This serves to reinforce the public’s feeling that insurance companies are devious and not to be trusted – especially it seems, in respect of critical illness insurance. This view is reinforced by the fact that around 20-25% of critical illness claims are rejected (although this rejection rate does vary between insurers). This issue is something that insurers must come to grips with – it’s bad for clients and undermines confidence in insurance – and that must be bad for the development of the insurance industry.
In fact to put no finer point on it, it’s a tragedy. As many as 1 in 6 women and 1 in 5 men will be diagnosed with a critical illness before their normal retirement age*. As such, critical illness insurance is vastly important for the protection of family finances. The problems we have highlighted are obviously contributing to a situation where almost everybody needs critical illness insurance, but fewer and fewer of us are taking it up.
Critical Illness Insurance Do you really need it? Or is it a waste of time?
<strong>GREAT NEWS! </strong> There’s now a one in five chance of you winning the lottery before you retire.
Getting excited? Think it’s just a matter of time before you win? Think again, it’s not going to happen – but it got you thinking!
Now think of the same odds but this time about bad news. There is a 1 in 5 chance for men and a 1 in 6 chance for women that a long-term critical illness will prevent them from working. Sorry – this time it’s true.
Insurance cannot change those odds but it can alleviate the potential financial wreckage caused by being unable to work through long-term illness and still having a family and home to support.
Convention declares that every good family man should have life insurance. It’s easily understood, it’s accepted and your next door neighbor has it too. But what about it’s close cousin critical illness insurance? You’ll have to walk several streets to find someone who has it. Given the odds, why? After all it pays out a tax-free lump sum immediately an insured critical illness is diagnosed.
The usual reason given is its expense. Yes it is more expensive than life insurance but after all it’s providing cover for a greater risk. You’re much more likely to experience a critical illness than die before your normal retirement age. Indeed, the average age for a claim is 47. So clearly there is much more to the public’s resistance.
Not understanding the risks or “head in the sand syndrome” are certainly major factors. After all a Alzheimer’s disease, bacterial meningitis, brain tumors and leukemia plus the long list of other illnesses typically covered by critical illness insurance, are not matters we care to think of nor know much about.
Could there be another reason? Well there have been repeated newspaper articles about people who claim on their critical illness policy only to have it turned down on an apparent technicality – the inference being that the insurance company cannot be trusted. Indeed, Standard Life freely admits that it turns down around 20 % of critical illness claims.
The truth is that behind every story of rejection there’s a harrowing story of illness, distress, and sorrow – and potential copy for the journalist. But that in itself, is not evidence that the insurance company is guilty of devious behavior.
Yes insurance companies do make mistakes, but more often than not the claim was invalid from the outset. There are two main causes. Firstly, the policyholder is claiming for an illness that is not one of the critical illnesses scheduled in the policy documentation. Regrettable, but it’s a fact that if the illness is not listed it isn’t insured and the policy won’t pay out.
The moral is to closely compare the illnesses covered by competing insurance companies and buy the one with the most extensive coverage of illnesses. If you don’t, sods law will prevail …….
The second major reason for refusal is a failure to disclose all relevant matters on the original application form. For example, if the applicant fails to disclose in response to the insurance company’s questions that his father a died of a heart attack aged 50 or that he is having medical tests for headaches, then the insurance company will wrongly assess the risks it is being invited to insure. Had the insurance company known this extra information they might have increased the premium, or asked the applicant to go for a medical examination, or waited for the outcome of tests, or even refused to provide cover. By failing to disclose, the applicant has effectively obtained cover on false pretenses or at least on inaccurate information.
Thereby lies the second moral. Always provide the truth and the full truth on your application form. Anything remotely relevant to your medical condition must be disclosed.
All this points to the need for professional insurance advice. Critical Illness policies do vary and it can take an experienced eye to evaluate the best policy for your circumstances and pocket. This doesn’t mean that you have to miss out on the discounted premiums available online – but do thoroughly talk it through with one of their telephone based advisers and do make sure you read the schedule of claimable illnesses when it arrives in the post.
Then sit back knowing you’ve taken another important step to protect your family’s finances. Lets all hope that you’re one of the majority who are happy never to claim.
It’s now time to concentrate on enjoying life.