When it comes to protection planning, life insurance is often front of mind, but what about the financial impact of surviving a serious illness? The likelihood of suffering a critical illness such as cancer, heart disease, or stroke before retirement is five times higher than dying, yet awareness and understanding of critical illness coverage remain strikingly low. For many families, the consequences of such diagnoses can be both emotionally and financially devastating, and the absence of adequate cover can turn recovery into a financial crisis.
Alan Lakey, Director for CIExpert, highlights how advisers and consumers alike need to reframe critical illness protection as a core pillar of financial resilience, not an optional extra.
Why critical illness cover is an essential (but sometimes forgotten) part of financial resilience
Consumers are used to the concept of life insurance, which is understandable given death is something most of us recognise is inevitable. However, the reality is that suffering from a critical illness, such as cancer, heart disease, stroke or multiple sclerosis is actually 500% more likely than death, prior to retirement.
In fact, the financial implications can often be far worse. Imagine a situation where somebody is paralysed, has lost both legs, or has suffered a debilitating stroke making permanent third-party care an essential requirement.
In these circumstances, critical illness cover is of valuable support. Yet, many consumers remain unaware of its existence.
CIExpert’s Critical Thinking study found a significant lack of understanding and awareness of critical illness cover among consumers. Only 4 in 10 (45%) understood the basic premise that they would receive an agreed lump-sum payout when diagnosed with a critical illness. Furthermore, 17% of consumers wrongly believe that a CIC payout must be used to pay off a mortgage, rising to a quarter of young people (27% of Millennials and 26% Gen Z), while a further 49% of consumers “didn’t know”.
How can adviser conversations around protection better integrate CI into wider planning discussions?
Potential consequences of having a critical condition have to be explained in a way that enforces the reality. Celebrities and millionaires suffering such diagnoses prove that wealth cannot buy good health and we are all at risk. The State will only modestly support people in these circumstances and cannot be relied upon, so each individual has an onus to ensure that they have suitable and relevant protection in place.
Surveys have shown that more people insure their pets than themselves and this head-in-the-sand approach leaves them vulnerable.
Trends in claims, policy design, or client awareness
Policy design continues to improve critical illness plans by adding new conditions, improving the claims wording of existing conditions and by increasing payment levels for additional payment conditions and children’s critical illness cover.
Claims payments continue to hover around the 91% mark with the majority of declined claims being due to not meeting the definition of the condition. This is due to most claimants not fully understanding what conditions are included and also the precise requirements within the condition wording. Client awareness continues to improve but remains nowhere near the optimum.
Product developments or innovations improving flexibility, affordability, or client understanding
The majority of insurers now offer a two or three-pronged approach where cheaper basic plans are marketed alongside more comprehensive and more expensive versions. Additionally, there have been significant improvements to children’s coverage with numerous birth defects and pregnancy complications now being integral or optional.
Another recent push has been the acceleration of many condition claims once admitted to the NHS waiting list for treatment.
How has CI cover has made a tangible difference for policyholders?
Legal & General recently produced a video from a young mother whose child was being treated for sarcoma. She didn’t know how they would cope financially with the loss of work income, the travelling and ancillary costs of staying with and visiting their daughter. Her relief at finding out that her mortgage protection plan included children’s cover was demonstrable, and she is now an avowed advocate of critical illness plans.
