Types of Critical Illness Cover

We Help you Decide which Critical Illness Cover is Best for you

Here we compare the types of critical illness cover to help you decide which critical illness cover is the best for you. It is important you choose carefully from the variety of critical illness plans that are available.

Accelerated Critical Illness Cover

This is where you add critical illness benefit to a term life insurance plan such as level term assurance or decreasing term assurance and is the most common way critical illness cover is bought by individuals. In 2007 Accelerated CI sales accounted for over 90% of all critical illness plans taken up in the UK (Source:Swiss Re Term & Health Watch 2008). By adding critical illness cover in this way it means your life insurance will not only pay out if you were to die but also if you were to suffer one of the covered critical illness conditions such as heart attack, cancer, stroke, MS etc. The types of term assurance plan that this can be added to are:

• Level Term Assurance with Critical Illness
• Decreasing Term Assurance with Critical Illness
• Mortgage Life Insurance cover with Critical illness
• Family Income benefit policy with Critical Illness

Stand Alone Critical Illness Cover

This type of critical illness cover does not include life insurance so is used where there is no need for life assurance. Usually because life insurance is not needed or where life cover is provided by existing life insurance policies or employer death in service benefits.

This type of critical illness cover is not as popular as accelerated critical illness cover. Stand alone critical illness policies accounted for just 10% of all critical illness sales in 2007 (Source:Swiss Re Term & Health Watch 2008). This is because there are fewer insurers that offer stand-alone critical illness cover. As a result the market is not as competitive so premiums can often be higher than they are when life insurance is also included. In this case most consumers are getting better value by including life cover as well as the premiums are cheaper so they effectively get free life cover which can be no bad thing... even if you don’t need it now.

Guaranteed, Reviewable or Current Costed Premiums?

One of the important decisions you will have to make when buying critical illness insurance is which type of premium to choose. There are three types.

• Guaranteed premiums – as the name suggests the premium will not change during the term of the plan. Once the plan has started the premium is fixed and will not change. This is attractive as you know at the outset exactly what the premium will be for the life of the plan and can budget accordingly. All guarantees come at a price though; the price here is that this type of premium costs more at outset than others. Nearly half of all critical illness plans that were arranged in 2007 had guaranteed premiums.
• Reviewable Premiums – as the name suggests the premium will be reviewed periodically and may change. This can be a good option for those who are finding guaranteed premiums hard to afford, as Reviewable premiums are generally cheaper initially than guaranteed premiums. Usually premiums are fixed for the first 5 or 10 years and then reviewed by the insurer every five years or sometime annually. At a review the insurer will look at its book of critical illness risk as a whole, review the number of claims it has paid out and project forward to decide if overall it has got its premium levels right to enable if to be able to afford to continue providing the cover to all its policyholders at the same price. If claims and other costs have been higher than anticipated at outset it will seek to raise its premiums. If they have been in line with expectations then premiums will stay the same, if they have been better than expected then technically premiums could fall, however this is very rare. It is important to remember that when premiums are reviewed the individual policyholders state of health is not reassessed. So your premiums would never increase just because you are older or have suffered deterioration in your health. Nearly half of all critical illness plans that were arranged in 2007 had guaranteed premiums.
• Current Costed/Renewable Premiums – Here premiums are set every year and will rise. Sometimes an estimate is given on the quote as to how much they could rise by but this only a guide and premiums can rise by any amount. Premiums will always rise with this type of plan because your age is taken into account at each annual review and as you will be a year older then premiums will rise and as critical illness cover gets more expensive the older you are then the rate of premium rise will also accelerate. The advantage of this type of plan is that it makes the cost of critical illness cover much more affordable at outset. Also as most people expect their monthly income to rise over the years then you could take the view that rising premiums are ok. Current Costed premiums are widespread in many countries however in the UK guaranteed and reviewable premiums are more popular. Synergy is currently the only insurer that offers current costed premiums.

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