According to the Association of British Insurance, 25% of breadwinners in the UK don’t have life assurance in place, which would potentially leave their families open to financial problems if they died. This equates to 8.5 million adults and leaves a cover gap of £263 billion.
Studies have shown that although people know what life assurance is and say they understand the importance of it, the number that have actually taken a policy out is very low.
And it seems they are even less likely to have critical illness cover.
This type of insurance pays out a lump sum if you are diagnosed with a life-threatening illness such as cancer or heart disease. The money is tax free and can be used in any way you like – to pay a lump sum off your mortgage, enable you to stop working or go part-time, buy private medical care or generally help your household finances. It’s up to you to decide how much you think you’ll need when you take the policy out.
Research by Scottish Widows, however, revealed that just 8% of Britons have a critical illness policy, compared with a third who have taken out life cover. This is despite the fact that a claim for critical illness before you are 65 is four times more likely than one for life cover.
This neglected cover could prove crucial, leaving you and your loved ones to cope with financial worries at what would already be a stressful and distressing time. Cancer accounts for almost two thirds of critical illness claims, with more than 293,000 new cases of cancer diagnosed each year. More than a third of us will develop some form of the illness. Other common claims include heart attack, stroke and multiple sclerosis. This means many families are walking a financial tightrope with no safety net should either parent be unable to work.
So why is critical illness cover not taken up?
In the past, this type of cover did have a poor reputation as it was felt too many policies let insurers off the hook and there was no transparency about how many claims they approved. However, insurance companies do now declare how many claims are successful – on average more than nine out of ten. They have also increased the number of illnesses and conditions covered. Previously, some policies only covered ten but the list now includes up to forty or fifty.
It also comes down to a question of priorities. The Scottish Widows research revealed that 80% of us consider broadband as essential for daily living and 71% can’t get by without a mobile phone. In contrast, only 28% of us feel that protecting our families in case we become critically ill or unable to work is a necessity. It’s all too easy to pretend the worst will never happen.
This type of benefit is sometimes provided by employers for their staff on a group basis, as many employee benefit plans provide insurance cover for long term illness, loss of life and medical treatment, promoting peace of mind. It is important to investigate carefully what is included in your employment package before taking out cover, but also to bear in mind that should you leave employment any such cover is likely to cease on your departure.
So whether it’s on an individual basis or through your employer, our recommendation would be not to ignore your protection cover. Make it an essential part of your financial planning.
A critical illness policy is a non-investment pure protection policy and has no cash in value. Some conditions may not be covered by a critical illness policy.
David Bull is a Chartered Financial Planner at Creative Wealth Management and works with a range of clients, from entrepreneurs to medical professionals, to build bespoke financial plans in support of their aims. Outside of work, you can find David at the Emirates Stadium or in exotic eateries sampling different cuisines.
Sources
https://www.thisismoney.co.uk/money/news/article-3387027/One-four-UK-breadwinners-not-life-insurance-buy-life-cover.html
https://www.telegraph.co.uk/finance/personalfinance/insurance/lifeassurance/8492955/Most-Britons-lack-life-insurance.html
https:// www.financialprotectionlimited.co.uk/uk-families-running-risks-critical-illness/
https:// www.thisismoney.co.uk/money/bills/article-2771913/One-area-money-critical-not-ignore.html
https://www.theguardian.com/money/2013/dec/07/critical-illness-insurance-bad-reputation