Summary
Lots of people with critical illness insurance cover don’t really understand how these planswork. There are appeals for tougher rules on the selling of such insurance policies. People need plenty of information on plans which best suit their individual needs.
The main financial regulator made known its apprehensions two years ago that lots ofplan holders did not appreciate what their insurance covered. Those uncertainties still remain true.
The City Regulator, the Financial Services Authority (FSA) announced that data showed that insurers, including supermarkets, insurers, financial advisers and banks often made negligible effort to understand if the life insurance was adequate and little information was presented to customers of how policies work. While most organisations were working to apply enhanced standards, others continued to offer a poor service.
In the event that heart disease, stroke, canceror other listed life-threatening illnesses is diagnosed, critical illness cover pays out a capital sum. Inevitably, it is people who are worried about paying off mortgage, debts and loans if they become unable to remain working, who purchase these plans.
There are two kinds: 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 over of five million policies covering 12m policyholders. An average policy will pay out sixty seven thousand pounds.
These “protection” plans have proved to be controversial. While they can be beneficial, these “protection” insurance plans have proved controversial and financial commentators claim that not many people make a claim. There is no information available on the numbers of claims made contrasted with the total money spent on the premiums. The FSA review did reveal, however, that on average, 24% of the claims made are invalid.
Recently, in one situation a insurance holder was diagnosed with cancer but doctors could not specify which one. The customer was regretably informed it was unlikely the cancer consultants would know for certain until he had passed away.
Until they could understand exactly what illness he had, his insurer would not pay out. The claimant’s financial advisers appealed realising that should he die, the company would pay out a life insurance policy worth £15,000 rather than the critical illness policy which was worth more than 80,000 pounds as only one policy would pay out. The argument with the insurance provider caused increased stress to the client. After a public fight, the insurance company agreed with the policyholder’s advisers and paid out on the critical illness policy.
Which?, now known as the Consumers’ Association, said it thinks the situation is much more serious than the City Regulator claims and that sales of critical illness cover are at the centre of a mis-selling scandal.
Mick McAteer, principal policy specialist, says brokers, commission-hungry advisors and finance companies, saw a good chance to make excellent earnings. He said the Consumers’ Association had predicted the mis-selling that was rampant in the selling of pensions and payment protection insurance and would be replicated in the critical illness sector.
His forecasts are on the back of complaints in in government regarding the mis-selling of critical illness protection policies. Max Bing, the MP, says the FSA’s study shows there is a high risk that policies are being sold to consumers who don’t appreciate what they are buying or who don’t even need them. The MP wants the FSA change its rules that would limit sales to financial advisers working under strict guidelines.
