Critical Illness Cover (CIC) will pay you a tax-free lump sum following diagnosis of a life- threatening condition.
However CIC is becoming more expensive, as the number of claims increases and advances in medical science introduce a range of new treatments for doctors and specialists to prescribe.
Recently, the cost of cover has been increased by two more insurers. The premiums charged by Swiss Life have increased by about 20per cent and Legal and General are asking for between 20 per cent and 25 per cent more for their cover. This is nothing compared to Norwich Union and Scottish Equitable, whose premiums have sky rocketed by 60 per cent and Friends Provident and Bupa have followed their lead and announced a 50 per cent hike in premiums. Liverpool Victoria is also planning a rise, although the magnitude of the increase is yet to be announced.
The insurance industry has been shaken to its foundations by rapid developments in medical science, which enable people to survive illnesses, which would have been fatal only ten years ago. The ramifications have been far reaching, as critical illness policies have paid out more often, whilst life insurance claims have decreased. As you might expect, the cost of CIC has soared and that of life cover fallen.
The Association of British Insurers has tried to address the problem by revising the terms of cover, both for prostrate cancer and heart problems.
These conditions, if detected early, are no longer life threatening. With this in mind, the terms under which CIC policies pay out are being redefined, which will curb the increase in related claims and thereby control premiums. A typical example is skin cancer, which is not covered by CIC unless it is invasive.
Kevin Carr of broker Life Search says that as conditions, which are currently covered by CIC become easier to detect and more treatable, then insurers find themselves settling claims on conditions, which are not life threatening. This is not the purpose of a critical illness policy, he says.
The terms of policies are likely to be reviewed more frequently in the future. An example is the decision of Swiss Life to remove diabetes from their CIC list of ailments, which leaves only Bupa offering cover for this disease. Reviewable policies are now being offered by more providers, which enable the insurer to review the illnesses covered every five years.
A CIC policy charges a fixed monthly premium and runs for a specific term, which is usually the duration of their mortgage. Cover of this kind is becoming more expensive. As the price gap between reviewable and guaranteed policies widens, people are choosing a reviewable policy more often.
This trend is reflected in the decision of Legal and General to increase the cost of a guaranteed CIC, whilst launching a reviewable policy as an alternative. Scottish Widows only offers reviewable cover, whilst Skandia has recently withdrawn their guaranteed CIC.
Current policies cannot be altered to include a new set of definitions for ailments. Mr Carr thinks that people will still choose the guaranteed policy, even though reviewable cover is probably cheaper. He recommends that people without cover should sign up now for a guaranteed policy before it gets even more expensive.
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