What exactly are critical illness insurance policies – are they designed mainly for older people and can you buy these policies in addition to your life assurance, asks FIONA REDDAN
“Back problems or illnesses caused by mental health issues such as depression and stress are the two biggest reasons people are unable to work, yet most critical illness policies do not offer cover on these
ALTHOUGH MEN have a one in four chance of becoming seriously ill before the age of 65 and women a one in five chance, the uptake of critical illness policies remains quite low in Ireland, with just 20.3 per cent of adults having cover.
Critical illness insurance policies, which are available as an add-on to most life assurance policies or on their own, are designed to protect your income should you get a serious illness, paying a significant tax-free lump sum upon diagnosis. But what are such policies, are they worth the money and do they always pay up?
The first misconception people may have with regards to such policies is that they are designed for older people – but serious illnesses are not just for the over-50s. Last year, Bank of Ireland revealed that 50 per cent of all claims were made by individuals aged between 20-49 years, while 76 per cent of all female claims were in this age category. As such policies are aimed at protecting your income should you be unable to work, they are most useful when you are gainfully employed.
In addition to illnesses, most policies also offer cover if you can’t live independently. For example, Irish Life offers cover if you are permanently unable to perform at least three of the following activities: walk 100 metres, get into and out of a vehicle, wash yourself all over, eat food that has been normally prepared using normal cutlery, put on or take off all necessary items of clothing, or climb stairs.
Some insurance providers also offer extra benefits on their policies, such as personal accident benefit, hospital cash, or a conversion option, which lets you convert your cover into a new policy when you are older, even if your health has deteriorated by that point.
You can buy cover which is separate from your life cover – for example you have life assurance of €300,000 and critical illness cover of €100,000 – or you can buy it as part of your life cover, which is known as “accelerated specified illness cover”.
In this case, if you have one of the specified illnesses in your policy you can make a claim and your life cover will then be reduced by that amount.
In the above example, your life cover would be reduced to €200,000 if you claimed for critical illness.
While a lump-sum payment is obviously very welcome if you are diagnosed with a serious illness, it can be expensive, much more so than life assurance, as you are four times more likely to contract a serious illness before the age of 65 than you are to die. The actual cost of your policy will depend on a number of factors including the sum assured, who the insurance will cover, and the term of the policy. Of course your health and family medical history will also affect the cost.
If you smoke, you can expect to pay as much as double the cost for non-smokers, while if you have a medical condition or have a family history of certain illnesses or early death, you will also usually pay a higher premium.
Another disadvantage of critical illness policies is that they provide a list of illnesses, normally about 25 or so, which they cover, which means that if your ailment doesn’t exactly match a specific illness listed in your policy, then you won’t receive a lump sum. Moreover, you will also need to get a confirmed diagnosis that meets the terms and conditions in your policy.
Most of the major diseases are covered, such as cancer, strokes, Alzheimer’s, heart disease, multiple sclerosis and Parkinson’s. However, there are differences between service providers and some are more inclusive than others, which means it is important to read the fine print before signing up to a particular insurance company.
Almost a quarter of critical illness claims made are related to heart problems, but not all insurers offer similar protection. For example, procedures such as angioplasty and the insertion of stents are often treated differently.
At Eagle Star, angioplasty is covered, however it must meet specified severity requirements, such as treating narrowing or blockages of at least 70 per cent in two or more main coronary arteries, and the patient must be under 65. Bank of Ireland will provide 10 per cent of your benefit if you have single vessel angioplasty, while Irish Life does not offer any cover on such procedures.
Moreover, back problems or illnesses caused by mental health issues such as depression and stress are the two biggest reasons people are unable to work, yet most critical illness policies do not offer cover on these.
Another issue is that as many serious illnesses are caught early today they don’t progress to the level required by many policies for a pay-out. For example, at Irish Life, it is only invasive types of cancer which are covered, as all tumours which are described as pre-malignant, as non-invasive or as cancer in situ, aren’t covered, while certain types of prostate cancer are also not eligible.
The life insurance company also deems that most forms of skin cancer are relatively easy to treat and are rarely life-threatening, which again precludes a patient suffering from this cancer to make a claim. Similar exclusions are also part of Eagle Star’s policies, while Canada Life’s policies exclude ailments such as diabetes and tumours detected at an early stage and which are easily treatable.
So, before you take out a policy, you should bear in mind the above and also carefully consider whether you need it or not. For example, do you have a large mortgage which you would need help repaying if you couldn’t work?
Or do you get any sick pay from your employer if you are out of work for a long period of time?
You will need to work out how much cover you may have already, and how much extra you would need to pay off your mortgage, pay off other loans and bills and meet every day expenses. In 2008, the average critical illness claim paid by BOI was €81,337.
Finally, if you would like some form of protection for your income, but are worried that critical illness policies are too restrictive, an alternative is income protection, which guarantees you a percentage of your income for as long as you are unable to work due to injury or illness.
The major advantage of such policies over critical illness is that they are not as restrictive, and cover, for example, mental health and back problems. Moreover, tax relief is available at your marginal rate on income protection premiums so it is usually cheaper.