October is breast cancer awareness month and next month November will aim to raise awareness of prostate cancer and men's health. These campaigns will be well supported, mainly because most of us know of someone affected by such serious illness.
As life expectancy increases, the risk of developing a serious illness also rises - and so too does the chance of surviving. Five-year survival rates for breast and prostate cancers are now 80% and 70% respectively1 and the risk of dying, from any illness, before the age of 65 is falling. The fact is that if you have a mortgage, you are far more likely to develop, and live with, a critical illness than to die before paying it off. So why is it that more mortgage holders take out life assurance than critical illness cover?
It may be that people do not fully understand the risks to their finances, but another reason lies in the difference between the two types of insurance. Life policies are straightforward and people expect them to pay out in the event of a claim. Critical illness policies are far more complex. They are full of medical terms and exclusions that few people understand, and which many view as tricks so that the insurers can avoid paying out on claims
But a high proportion of premiums are paid out. One provider recently announced that 93% of claims in the first half of 2009 were paid out2.
Critical illness cover may be hard to understand, but that does not mean that we should ignore it. With almost 300,000 new cases diagnosed every year in the UK, cancer is one of the major threats to people's ability to work and pay their mortgage.
The answer is to conduct a proper financial review that helps you understand the real risks and how they could affect you. Then fully research the market to learn what insurances are available and what they can provide. For example, some insurers operate a sliding scale that pays between 10% and 100% of the sum assured, depending on the severity of the condition. These policies are relatively cheap and pay a fixed sum on diagnosis. Furthermore, it can be beneficial to start young when premiums will be cheaper, rather than leaving it until later in life when the price of cover will start to rise.
The cancer awareness months of October and November will do a good job in making us think about subjects we would all rather avoid. But as well as making an effort for fundraising, it is important to also think about the real risks to your family finances.
Having the right critical illness cover can be very valuable. It can provide cash to allow you to pursue a less stressful life while recovering from illness. But only if you understand the risks and search the market for the policy that best meets your and your family's circumstances.
If you would like to know more about critical illnesses cover please call Eric Norman-Walker on 020 8974 7500 or email us at advice@menzieswm.co.uk
Eric Norman-Walker is a Chartered Financial Planner and Managing Director of Menzies Wealth Management Limited.
Notes
1: Figures from Cancer Research UK
2: Based on Scottish Provident Critical Illness Claims Report, September 2009