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Critical illness article

Most home buyers purchase life assurance when they arrange a mortgage, but only a minority
obtain another form of financial protection that they are five times more likely to need before
they reach retirement.

Critical illness assurance pays a tax-free lump sum on diagnosis of any one of a list of serious
illnesses – including cancer and heart attacks. Claims statistics suggest you are five times
more likely to suffer from one of these than you are to die before you reach 65.

The good news is that medical advances mean more people than ever are surviving conditions
that might have killed earlier generations. For example, more than 90% of men diagnosed
with testicular cancer are still alive five years later, while more than 80% of women
diagnosed with breast cancer have the same survival rate, according to the Office for National

Critical illness cover can provide cash to allow people to pursue a less stressful lifestyle
while they recover from illness, or use it for any other purpose. But half of women in Britain
have no life assurance, critical illness cover or income protection and a quarter rely on their
partner’s policies instead, according to a survey by Axa.

But with one in every five claims for critical illness cover for breast cancer, and about 46,000
people diagnosed each year, now is the time to make sure you have the right protection.

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Critical illness is relatively cheap and, on the face of it, relatively straightforward. You insure
a fixed sum at the outset – usually the outstanding balance on your mortgage – this is paid out
on the diagnosis of one of the 30 or so conditions listed on the policy.

But why do very few woman have this protection?

This cover has come in for repeated criticism in recent years as many consumers have
complained that insurers rely on complex medical definitions to decide who does and does
not get a payout. To be fair to insurers, most have clearly listed the exact nature of the
conditions covered in the policy terms and conditions. But to the average healthy consumer,
terms such as “in situ carcinoma” or “pre-malignant or non-invasive cancer” are nearly
meaningless. Most simply assume that if they have bought a policy it will pay out if they
have cancer.

If you bought the policy from an independent financial adviser, they should explain that they
only cover certain conditions, and that these conditions have to be of a specified severity to
qualify for a payout.

Kevin Carr, spokesman from PruProtect, said: “Breast cancer is covered by critical illness
policies, but many policies exclude ‘early stage cancer’ which is when cancer is considered
to be non-invasive. Breast cancer may be considered ‘early stage’ even if a lumpectomy
or mastectomy is required and therefore many insurers will not pay out. The other main
exclusions are for certain types of prostate and skin cancer.”

However, he said that there are a few insurers such as PruProtect, Axa, Royal Liver and
Skandia who look at cases on a severity basis and will pay anything from 10% to 100% of the
sum assured, depending on the condition.

Prudential takes a slightly different approach with its “serious illness” policy. It will make
reduced payments to those with less severe types of breast cancer and other conditions
typically not covered on a standard critical illness policy. Those buying a critical illness
policy have the option of renewable or guaranteed premiums.

The latter are more expensive, but you know payments will remain level throughout the life
of the policy – which may run for 20 years. Renewable premiums may be lower, but prices
could rise if, for example, new screening methods result in more claims.

Mr Carr said: “Critics of this system say that it is too confusing for customers, but we
disagree. When you break your wing mirror on your car, your car insurer does not pay out the
total value of your vehicle. Our system is basic common sense.”

Many insurers will have a detailed guide to the illnesses and conditions covered, which
will be written clearly. Ask to see this, as well as the document setting out the policy’s key
features, benefits and exclusions.

Most people buy critical illness cover when they take on a major financial commitment, but
it’s important not to buy the first policy offered – shop around.

It also pays to start young when premiums will be relatively cheap, rather than leaving it until
later in life when the price of cover will start to rise substantially.