Life Insurance Cover – ABC

Summary
Commonly people in the street with critical illness insurance plans do not really apprehend how these policies work. There are appeals for tighter rules on the presentation of such insurance. Some people need more information on plans which best suit their individual needs.

The chief financial regulator expressed its worries a few years ago that hundreds of thousands of plan holders did not comprehend what their policies covered. Those worries remain.

The  Financial Services Authority, the city regulator said that industry data showed that insurers, including insurers, banks, financial advisers, and supermarkets often made negligible effort to establish if the insurance cover was appropriate and inadequate information was given to policy holders of how the plans operates. While most companies were working to adhere to enhanced standards, others continued to offer an inadequate 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. Usually, it is people who are worried about paying off loans or mortgages if they should be unable to stay in work, who buy these life assurance protection policies.

For cheap life assurance cover there are two types: where the monthly premiums increase over the years and those with a guaranteed fixed monthly premium. Figures from the Association of British Insurers (ABI) indicate that, in total, there are in excess of 4m insurance policies covering 12m policyholders. An average policy will pay out £68,000.

These “protection” policies have proved controversial. While they are sometimes very benefitial, these “protection” life insurance arrangements have proved controversial and commentators claim that not many policyholders make a claim. There are no figures available on the number of people claiming made contrasted with the total expenditure on the premiums. The Financial Services Authority review did show, however, that on average, twenty five per cent of the claims made are refused.

Recently, in one situation a policyholder was found to have with cancer but doctors could not say which one. The policyholder was regretably told it was unlikely doctors would know for certain until he was six feet under.

Until the specialist doctors could diagnose what type of cancer he had, his insurance company would not pay out. The claimant’s financial advisers appealed realising that should he die, the insurance company would pay out a life insurance plan worth 15,000 pounds rather than the critical illness policywhich was worth more than £85,000 as only one policy can pay out. The argument with the underwriters caused untold stress to the claimant. After a public fight, the insurer agreed with the client’s legal team and paid out on the policy.

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

Michael Chunkline, principal policy specialist, says brokers, finance companies and commission-hungry advisers, saw a chance to make  a big pay off. He said Which? had said the mis-selling that was rampant in the selling of pensions and payment protection insurance and would be replicated in the critical illness business. His forecasts are on the back of complaints in amongst MP’s regarding the mis-selling of critical illness insurance plans.

Amanda Layling, the MP, says the Financial Services Authority’s study reveals there is a big risk that policies are being sold to the public who don’t understand what they are buying or who don’t even need them. The MP wants the FSA change its rules that would limit sales of critical illnes policies to financial advisers working under especially strict FSA guidelines.