The chief financial regulator expressed its worries four years ago that many insurance holders failed to understand what their insurance covered. Those uncertainties are still valid.

The City Regulator, the Financial Services Authority said that research indicated that providers, including supermarkets, insurers, financial advisers and banks often made no effort to establish if the insurance cover was adequate and inadequate information was given to people of how the plans works. While most organisations were working to adhere toimproved standards, others continued offering a substandard service.

In the event that a stroke, heart attack, cancer or other listed life-threatening illnesses strike, critical illness cover,insurance pays out a lump cash sum. Inevitably, it is customers who are worried about paying off debts if they were unable to work, who buy this cover.

There are two kinds of plan: where the monthly premiums increase over the years and those with a guaranteed fixed monthly premium. Figures from the Association of British Insurers (ABI) show that, alltogether, there are over of 5m insurance plans covering 12m customers. An average policy will pay out sixty seven thousand pounds.

These “protection” plans have proved to be controversial. While they might be of  use, these “protection” insurance plans have proved controversial and some critics observe that few make claims. There is no data available on the number of people claiming made contrasted with the total premiums paid. The Financial Services Authority review did reveal, however, that on average, 25% of the claims made are declined.
,Recently, in one situation a policyholder was diagnosed with cancer but medical specialists could not identify which one. The client was regretably told it was unlikely the cancer consultants would know for certain until he had passed away.

Until the medical team could be certain what type of cancer he had, his insurer would not pay out. The claimant’s family appealed realising that should he die, the insurer would pay out a life insurance plan worth twenty thousand pounds rather than the critical illness planwhich was worth eighty five thousand pounds as only one policy can pay out. The argument with the insurance underwriters caused added stress to the claimant. After a report in the press, the insurance company agreed with the client’s legal team and paid out on the plan for critical illness.

Which?, now known as the Consumers’ Association,  said it thinks the situation is much more serious than the FSA claims and that sales of critical illness arrangements are at the centre of a mis-selling situation.

Peter Green, principal policy advisor, says commission-hungry advisors, finance companies and brokers, saw a chance to make huge profits. He said Which? had forecast the mis-selling that was seen in the pensions industry and would be replicated in the critical illness business.
His predictions are on the back of complaints in in the House of Commons regarding the mis-selling of critical illness insurance plans. Gordon Duncastle, the MP, says the City Regulator’s study reveals there is a high risk that cheap life insurance plans are being sold to people who do not appreciate what they are buying or who don’t even need them. The MP wants the city regulator to make rule changes that would limit sales of critical illnes policies to financial advisers working under especially strict FSA guidelines.

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The variety given by protection insurance list of options and the firms who are chiefs in this type of insurance. This editorial explains how the client can benefit

Protection insurance menus which offer customers the opportunity to coordinate health and life cover in an all in policy have been around for over 2 decades. Regrettably the early insurance policies did not prove to be very alluring to clients although the idea was right. Administrative savings, a single set of paperwork and direct debit were accepted by both the consumer and the insurer. Nonetheless the benefits given by these menus were counterbalanced by the disadvantages.

The scope of policies provided by the main pioneers, LV (Liverpool Victoria), were not competitive. Independent financial advisers shopped around major providers to put together protective deals for the customer, which significantly lowered the prices found in protection insurance options. The industry has now advanced and a huge amount of new protection policies have been released which have reaped the approvalof many intermediaries.

Scottish Provident was the 1st to develop a winning procedure when it re-launched it’s Self Assurance menu. They were soon followed by Scandia Life, Scottish Equitable Protect, Friends Provident, Legal and General, Liverpool Victoria Life and others are likely to shadow their lead soon.

Three key features are found in the majority of protection menus. Critical illness cover lists a number of stated critical conditions for which the insurance companies would pay out a lump sum. The cheapest option, term assurance, pays out a lump sum if you pass away within a given period of time and nothing from then on. The final option is income protection, which offers a consistent income if long term disability or illness impedes you from working. The menu may offer you redundancy protection, which is usually limited to 1 or 2 years and can also be restricted to the settlement of a mortgage. The major benefit is the flexibility of the products. For example different levels of insurance can be structured for separate sections, so should you make a claim on 1 part the other parts will still stay in force. No additional medical evidence will be needed before major living events, like having a baby, getting married or moving house. These supplementary benefits are known as ‘Guaranteed Insurability Options’.

Different components of insurance may be added on after the close of a short questionnaire and you are still able benefit from the standard insurance policy discounts.

An example of the benefits obtained from a protection menu is shown by a a young man and his wife who selected Legal and General’s Protection Choices menu for mortgage protection insurance. They are paying a joint policy of £31.10 a month for separate life policies and critical illnesses, which have been written on a joint life basis. To begin with they have insurance of £109,500 which goes down as their 22 year homeowner loan is paid off. Life assurance will be paid out if 1 of them departs this life and the insurance policy is terminated, but the one surviving will still be covered for critical illness insurance Life assurance will be upheld for both of themeven if one becomes ill and the policy will pay out on whoever dies first.

If the couple had taken out a standard joint life insurance policy with Scottish Equitable they would only get a pay out on their first claim. While with their Protection Choices insurance policy they are provided with two possible settlements costing only 7 pounds more. Even though employees are sometimes offered income protection with their job they can also cover their mortgage in the same way. Furthermore they might want to take out further critical illnesscover and life assurance not combined with their mortgage. Friends Provident’s  protection menu permits them to do so in a cost effective and straightforward way. The new options based insurance products enable you to save pounds even though you can shop around for single policies and only save a couple of pence.

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