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Kirk Rice Blog

Critical Illness – worthwhile?Written on July 22, 2015 by Peter Sharratt

Financial Services Questions

The Question:

I recently purchased my first property and I was advised to take out Critical Illness Cover.  I was put off by the cost and with the disruption of the house move generally decided that I would review it once I was settled.  That time has come but cost is still putting me off.  I can afford it but there are other things I would rather spend my money on.  Is Critical Illness worthwhile?

Peter Sharratt answers:

Critical Illness is an insurance and as with any insurance you pay a premium to provide cover against an unexpected or unwanted event happening.  The premium is representative of the risk to the provider in having to make a payment.  The risk of someone in normal health dying before age 65 is minimal and Life Assurance premiums reflect this.  The risk of that same individual suffering from a Critical Illness is higher and so Critical Illness Cover costs more.  Providers of Critical Illness Cover publish claims data which can highlight the importance of the cover.  The following has been provided by Scottish Provident (one of a number of providers) and relate to claims paid from 1st January 2014 to 31st December 2014.

The total number of claims paid was 1,595 (I expect they all thought it was worthwhile).  The total payout was £133,968,464 and the average age of a claimant was 47.  A policy was in force for an average of 7 years 3 months before a claim was made.  62% of claims related to Cancer and 12% were for Heart Attacks.  The 40 to 49 age band accounted for 33% of claims and under 40’s accounted for 16%.  Most Critical Illness Policies include Children’s cover for no additional cost and Scottish Provident sadly paid out on 73 claims.

Providers are also very upfront about the claims they have NOT been able to pay.  In total Scottish Provident had 103 (6%); of this 82 (5%) were NOT paid because the illness suffered did not meet their Critical Illness definition and 21 (1%) were declined due to non-disclosure.  Non-disclosure is where the applicant has not disclosed information at the time of the application which may have affected Scottish Provident’s decision to provide cover.  The last two points are very important, you need to be clear about what is and is not covered, but also make sure when applying that you disclose everything, if in doubt, tell them. Yes, I think it is worthwhile.

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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.