Cover For Nasty Ailments

Make sure you're not one of the one in four people whose critical illness claims fail. Plus, try not to fall ill and, ahem, a few more useful tips!

What are the disadvantages of critical illness? I mean the insurance policies, not any actual illness. We all know the disadvantages to the latter, but hopefully not too intimately!

Critical illness cover is used to protect your finances in case of specified serious illnesses, or if you need certain surgery. It pays out a lump sum and is known to have a lot of exclusions. (The clue is in the words 'specified' and 'certain'.)

Unfortunately, Norwich Union recently revealed that almost a quarter (23.5%) of claims are rejected. In 2005, it turned down 342 claims out of 1465. There are two reasons for disappointing so many people, which I'll call non-cover and non-disclosure.

Non-cover

Cancer, stroke and heart attack make up three of the four illnesses most often claimed, totalling 82% of all critical illness claims. Even so, Norwich Union admits in its own report on critical illness that no one diagnosed with these conditions will automatically be able to claim as some early cancers, minor strokes and heart attacks will not meet the required definitions.

There are lots of exclusions in a critical illness policy. Therefore, I strongly suggest you read and understand the cover to ensure it's suitable for you.

Non-disclosure

If you don't disclose any symptoms you have or your complete medical history, you may find that your claim is unsuccessful. This could be the case even if the previous medical conditions have nothing to do with your claim.

Theoretically(!), the insurer should still pay out if anything you haven't disclosed would not have affected the premium, the terms and conditions, or the decision to grant you cover. However, insurers may expect you to disclose even such things as skin conditions. This may because they've collected statistics which show that someone with psoriasis, for example, is more likely to get cancer. I don't know if it is true, but it's amazing what statistics insurers uncover sometimes.

It's also entirely possible that there is a more sinister reason for a claim to be denied on the basis of non-disclosure. It's not unheard of for some insurers to do anything they can to avoid paying a claim, often by instilling a culture of cynicism in claims-handling departments.

Therefore, my second suggestion is that you disclose everything! But if you feel your claim has been unfairly rejected, make a complaint. If that fails, contact the Financial Ombudsman Service.

So should you get critical illness cover?

There were 512,000 critical illness policies taken out in 2005. I find it hard to believe that this sort of cover is suitable for that many people. I think that most people might benefit more from an income protection policy, as it pays a monthly income, it covers far more causes of unemployment, and it has fewer exclusions.

You can get a joint critical illness and life insurance policy, but I suspect this will be more expensive than buying them separately. That's always the way with personal finance. Sigh.

With all this in mind, my third and final suggestion is: don't fall ill! It's just not worth the aggro.

> Compare insurance quotes through The Fool.