Critical cover women simply can’t afford to ignore

Jo Thornhill
27 November 2018
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Mums are less likely than dads to take out a critical illness insurance policy, but everyone with dependants should consider one. If you were to become seriously ill, it could offer a financial lifeline

Critical illness (CI) insurance – cover that pays out a tax-free lump sum on the diagnosis of a serious illness – can provide an invaluable financial safety net at a difficult time. Yet many women are overlooking this protection, leaving themselves and their families vulnerable.

Research by comparison website ActiveQuote.com suggests just one in five women has CI cover in place, compared to around one third of men. Worryingly, among women with dependent children just 13% has the cover, according to insurer Scottish Widows. Its survey found 40% of mothers have life insurance cover – a more robust figure – yet a critical illness claim is far more likely.

Emma Walker, chief marketing officer at independent protection specialist LifeSearch, says the gender gap in CI take-up is largely explained by women being more likely than men to take time out of work to raise children and care for elderly relatives. Women are more likely to work part-time or work flexibly around family, perhaps being self-employed. This means they won’t have protection benefits offered through an employer.

Ms Walker says: “For many families, the man might become the main breadwinner after children come along for a time. In this scenario, there can be a tendency to focus on protecting his income without considering how the work of the woman – particularly childcare – would be covered if she was diagnosed with a serious illness.’

Bad press surrounding this type of insurance may also deter people from taking out cover. Though the industry has tightened up policy wording and increased transparency, disputes can arise over claims and payments, which has tarnished the product in the past. Typically, disputes focus on what medical details the policyholder disclosed – or failed to disclose – at the time of taking out a policy, or how ‘severe’ or life-threatening a condition has to be before a claim is triggered. Early- stage or non-invasive breast cancers are not covered on many policies, for example.

“There can be a tendency to focus on how to protect the man’s income”

CI cover can also look expensive compared to life insurance and other protection policies. A 35-year-old non-smoker should expect to pay around £30 to £40 a month for a good-quality policy with a 25-year term, which would pay out £100,000 tax-free on diagnosis. Policyholders can choose the sum they wish to insure.

Pricing is the same for men and women of the same age, but premiums will be weighted if you are a smoker (premiums for a smoker in the example on the previous page would be around £50 a month), have a high body mass index or have pre-existing conditions and, in some cases, a family history of a particular illness.

But experts point out premium costs reflect the greater likelihood of a CI claim compared, for example, to life insurance, and the value of the cover. The average payout is substantial at £73,000, plus 92% of claims are paid, rising to 96% for cancer claims, according to the Association of British Insurers.

With charity Macmillan Cancer Support reporting that cancer sufferers are likely to be around £7,000 a year worse off as a result of the disease, an insurance payout at the time of diagnosis could help to hold things together financially.

Helen White, the director of the Insuring Futures programme at the Chartered Insurance Institute, which focuses mainly on the financial risks faced by women and working towards improving their financial confidence and security, says: “Women, and particularly younger women, need to think about the perils and pitfalls they may face including ill health.

“Many things can change in life, such as work, your health and relationships. Women must focus on their own financial independence and resilience to avoid problems,” she adds.

It was something Angela Alston was thankful for after she was diagnosed with breast cancer and had a mastectomy in 2014. Angela, 59, who is divorced and had a CI policy linked to her mortgage, received £92,000 through her CI plan, arranged through Highclere Financial Serviceswhich helped to clear the home loan.

“My mum died of breast cancer at the age of 50,” says Angela, who lives in Yetminster, Dorset, and has worked as a childminder, care assistant and mobile hairdresser. So it is something I think about a lot. I didn’t know much about this type of insurance 20 years ago when I took out the plan, but I knew I needed some protection to cover the mortgage as I was raising my daughter, Grace, on my own. The payment was a lifeline.”

“Women, and particularly young women, need to think about the perils they may face”

Critical cover women simply can’t afford to ignore

How does CI cover work?

Critical illness insurance is designed to pay out a lump sum, free of tax, to the policyholder in the event they are diagnosed with a serious illness, typically cancer, stroke or a heart attack, or a life-changing disability, such as blindness or loss of limbs. You can spend the money how you wish – to clear mortgage and other debts, to cover lost income or for private healthcare, for example.

Insurers give information in the policy contract about exactly what conditions and illnesses are covered – this can be up to 150 different illnesses, and in the case of cancer what stages will trigger a claim. In many newer policies, it may be possible to claim a ‘partial payment’ – for example, 10% to 25%, for early-stage or non-invasive cancers. In older CI plans, there would typically be no payout for these types of illness.

Insurers use risk-based pricing, so expect to pay more the older you are, or if you smoke, are overweight, have pre-existing conditions or have had recent medical treatment. If two or more close family members have died of a condition, this could also affect pricing. Insurers may exclude particular conditions.

You will choose how long you want the cover to run. Mortgage borrowers often take out a CI plan to cover the life of the home loan. You can insure a lump sum – for example, £100,000 – over the term, known as ‘level cover’, or you can choose a ‘decreasing cover’ plan which will be cheaper but the lump sum payout reduces over the term to match the reducing mortgage.

Many policies include critical illness cover for children of the policyholder until age 18, at no extra charge. The payout on diagnosis might be 25% to 50% of the total sum assured, for example, up to a cap, typically of £25,000 (£50,000 on a joint policy).

In contrast to CI, income protection pays out a monthly income if you are unable to work due to serious illness or injury. Upon making a successful claim, this income is paid until you can return to work, reach retirement age or die.

You must disclose all your medical history at the time you take out cover

Choosing a policy

You must fully disclose your medical history at the time you buy cover. This will avoid problems should you need to claim. Get a copy of your medical file from your GP – there shouldn’t be a fee for this. This way, you can ensure everything recorded about you is accurate and you can give the full picture to the insurer.

Alan Lakey, director at Highclere Financial Services and founder of CI-Expert, the online comparison tool for financial advisers, says: ‘It is essential to answer an insurer’s questions honestly. In some cases previous illness or a family history of an illness will affect pricing – but not always. Different insurers take a different view on different conditions so an adviser can select a policy that suits your circumstances.’

Take the time to understand the policy you are buying, what is covered and any exclusions or limitations.

It usually makes sense to look at life cover, critical illness and perhaps income protection cover at the same time, as well as drawing up a will to ensure the family is secure should the worst happen.

“Getting a joint life and critical illness policy from the same insurer may seem the obvious step but it isn’t always the best route,’ says LifeSearch’s Ms Walker.

“Some insurers offer policies with better terms for male cancers, such as prostate, while other insurers are better for breast cancer, for example,” she adds.

Regularly review any policies you take out, particularly if your circumstances change – such as you stop smoking or you slim down after being overweight. Changes might mean you have lowered your risk in the eyes of insurers, and you could find cheaper cover.

Many newer CI policies may be more comprehensive and provide better cover. They sometimes offer partial payments for some conditions where older policies would pay nothing. That said, some older policies may be superior and if your health has deteriorated, it may be better to stay with your current provider. Always seek advice and get an independent expert to compare policies.

“In some cases you can re-broker your life and CI cover, get more comprehensive cover and reduce the premium or keep it about the same – remember cheapest isn’t always best,’ says Paul Reed, a director at independent protection specialist Vita.

“We’re happier knowing there’s a financial cushion for our family”

Laura Alexander and children


Primary school teacher and mum-of-two Laura Alexander, 35, from Banchory, Aberdeenshire, has taken out life and critical illness cover to protect her family should the worst happen.

Laura says: “No one likes to think about potentially difficult scenarios such as long-term or serious illness, but when you have a family you have got to plan and make provision.”

Laura and husband Kevin, 38, an engineer, who bought a joint policy with Aviva through financial adviser Drewberry, pay £73.90 a month. This covers them for £334,000 of life insurance (which would pay off their mortgage) and £50,000 of critical illness cover over 27 years. Laura is a non-smoker and Kevin uses e-cigarettes, which means the premium is higher than it would be for a non-smoking couple.

Laura, who is mum to Ella, six, and Murray, three (pictured above with Laura), works part-time as a supply teacher since having the children. This flexibility works for the family, but it means there is no sick pay if Laura is unable to work.

Sadly, Laura’s mum died of bowel cancer in 2017 so the reality of critical illnesses is at the forefront of her mind. “I feel reassured knowing we have got these backstops in place,” says Laura. “I’ve seen first-hand how a serious illness changes your life. Kevin and I are happier that the protection policies are there and would provide a financial cushion for the family.”

 

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