Stick, twist, top up – or discard? These are the options facing thousands of holders of longstanding protection insurance policies.
The cover provided by critical illness insurance – which pays out a tax-free lump sum when a serious illness is diagnosed – has been transformed in the past five years, leaving many customers wondering whether their policies are still fit for purpose.
Unlike older plans that tend to cover three core health issues – heart attack, cancer and stroke – modern versions are broader in scope, paying out for dozens of problems. These include liver failure, loss of a single limb and terminal illness. A few even provide cover for serious mental disorders.
Helping hand: Angela Alston was diagnosed with breast cancer two years ago
‘MY £95,000 PAYOUT GAVE ME A NEW LEASE OF LIFE
Angela Alston, 58, is able to remain in her Dorset home thanks to a payout from a critical illness insurance policy she took out seven years ago.
Because her mother suffered breast cancer at age 45, Angela faced a significant loading of premium with insurers quoting as high as £140 a month.
But Alan Lakey, of CI Expert in Hertfordshire, managed to find cover with insurer Aviva, costing £84 a month.
Unfortunately, former hairdresser Angela was diagnosed with breast cancer two years ago and underwent a double mastectomy. But she did not claim straight away.
It was only during a call to Lakey earlier this year that Angela was told she could make a claim – and received £94,500.
Angela, who is now in remission, says: ‘Having this money has really helped and given me a new lease of life.’
Newer plans may also be cheaper, pay out reduced amounts for less serious conditions and offer automatic cover for children.
But experts warn not to act in haste in discarding an older policy in favour of a new one as age and deteriorating health can make many vulnerable to a leap in premiums. Although insurers appear more generous in terms of conditions covered today, a legacy policy can contain hidden gems.
Paul Roberts, head of protection at insurer Old Mutual Wealth, says: ‘Insurance has changed dramatically, from covering a small number of specific conditions to providing policies that are more flexible and include more conditions. But new is not always best.’
Alan Lakey of CI Expert, a service that compares critical illness policies, says: ‘It can be a struggle to determine an appropriate trade-off. Should one company’s policy offering 55 conditions be considered superior to another company offering 25 conditions?
‘More important is to apply a value to each condition based on the likelihood of a policyholder making a claim, taking into account age, gender, smoker status, the sum assured, whether child cover is required and also the different amounts paid for a particular condition.’
Industry figures show that most people claim for the three key illnesses of heart attack, stroke and cancer, suggesting newer plans with more obscure cover may not be necessary.
Melissa Collett, a director of the Chartered Insurance Institute, says: ‘Policyholders considering switching need to be aware that they may lose valuable cover obtained when they were younger and healthier. People should always take expert advice before making changes.’
CHECK PAYMENTS RELATING TO CANCER
Switching protection insurance cover is not straightforward. To put this to the test, we asked Alan Lakey to assess the merits of a critical illness policy bought by Duncan Brown (not his real name) at age 40 from Pegasus Assurance, now part of Royal London.
This was done by comparing it with a popular plan from Aviva that he could purchase today. Duncan is now 58 and his policy has a sum assured of £150,000.
On the surface, Lakey’s analysis confirmed that Aviva’s policy was superior – and priced similarly – to the Pegasus plan. It has 75 ‘advantages’ and just two ‘disadvantages’. But crucially the two disadvantages are significant for a man of Duncan’s age. He explains: ‘Duncan’s Pegasus plan uses a pre-2002 definition of cancer which provides for the full payment of £150,000 on diagnosis, including prostate cancer.
‘The Aviva plan pays £150,000 if cancer is diagnosed – but not if it is early stage prostate cancer.’
Hand on heart: Switching protection insurance cover is not straightforward
Prostate cancer is defined using a Gleason score – a measure of seriousness from 2 to 10. The Aviva plan pays out only on a score of 7 or above and limits any payout to £25,000 – and only if any tumour is treated by surgery or some other therapy. Pegasus pays out on invasive cancer, irrespective of score.
Lakey adds: ‘Since 46,000 men each year are diagnosed with prostate cancer and nearly one in three of these has a score below 7, the importance of the older definition used by Pegasus becomes clear.’ On heart conditions, the Pegasus plan would also pay the full £150,000 for balloon angioplasty – a procedure that clears an artery blockage – on one or more arteries.
But this is now a more routine procedure so Aviva restricts any payment to a maximum of £25,000 – and only if the procedure is carried out on the main artery or on two arteries.
Lakey says: ‘Of 96,000 angioplasty operations each year, 20,000 are on two or more arteries whereas 76,000 are on a single artery.’
His analysis concluded that these two valuable areas of cover substantially outweigh the potential benefits of the Aviva deal. Duncan should therefore stick, not twist.
Emma Thomson, head of customer care at broker LifeSearch, says knowing whether to switch is not a simple decision.
She says: ‘While newer policies offer more comprehensive cover, the cost of switching can be high because insurance gets more expensive as people get older.
‘If a person’s health has deteriorated it is probably better to stay put, though if they are significantly underinsured, taking out a ‘top-up’ policy might be a better strategy.’
Thomson says policies should be regularly dusted down to check they are still fit for purpose. She adds: ‘Getting an expert to cast an eye over a policy is vital. No one should cancel any existing cover until a new one has started.’
Find a specialist adviser via websites such as unbiased.co.uk, thepfs.org or vouchedfor.co.uk.
KEY FACTORS TO CONSIDER WHEN SWITCHING – OR DITCHING- A POLICY
Policyholders whose health has deteriorated since purchase should usually stay put.
Applying for a new policy means an insurer weighing up age, health, occupation, hobbies and family history – which might mean a leap in premiums or even a rejected application.
Conversely, people who have given up smoking or lost weight might find a new policy better value.
A policy purchased years ago might now fall short in terms of the sum insured. More cover may be wanted because of marriage, children or extending a mortgage.
Some insurers allow policyholders to increase cover. The premium will rise and the customer will normally not have to go through a rigorous application process. Conversely, if a mortgage has been paid off or children have flown the nest, then cover can be reduced – or even ditched.
Switching a policy can provide broader cover, though it depends on when the original plan was bought.
Five years ago:
A 31-year-old non-smoking woman who bought £36,000 of life and critical illness cover for 20 years with Aviva would be paying £7.30 a month.
By switching to a new policy with Royal London, with 15 years of cover to match the same end date, the premium would rise to £9.50.
The extra premium gives better cover for 46 conditions and 32 less serious illnesses.
Ten years ago:
A 43-year-old non-smoking man who bought £80,000 of cover for 25 years would pay £27 a month with Legal & General.
A new policy with Zurich is better for 57 conditions, plus 37 less serious illnesses – but the premium would rise a third to £40 a month.