Summary
Lots of those with critical illness policies fail to really understand how theses insurance plans function. There are calls for more comprehensive guidelines on the marketing of such policies. Most people need more information on products which best suit their individual needs.
The main financial regulating body published its worries four years ago that many thousands of people with insurance failed to appreciate what their policies covered. Those fears are still valid.
The City Regulator, the Financial Services Authority (FSA)announced that data showed that insurance providers, including financial advisers, supermarkets, insurers and banks often made little effort to understand if the insurance was appropriate and no explanation was provided to customers of how policies works. While most business organisations were working to adhere to improved standards, others carried on offering a poor service.
In the event that heart disease, stroke, canceror other listed life-threatening illnesses strike, critical illness cover, insurance pays out a lump sum. Inevitably, it is clients who are concerned about repaying mortgages and loans if they become unable to remain working, who purchase these plans.
There are two kinds of policy: those policies where the premium is fixed for ever (a guaranteed premium) and those where the payments increase over time. Figures from the ABI show that, alltogether, there are over of 5 million insurance policies covering 11m people. An average policy will pay out sixty eight thousand pounds.
These “protection” policies have proved to have critics. While the ploicies might beuseful, these “protection” insurance plans have proved controversial and critics allege that not many policyholders make claims. There is no data available on the numbers of policyholders making a claim made in comparison with the total expenditure on the premiums. The City Regulator review did reveal, however, that on average, 25 per cent of the claims made are refused.
Recently, in one case a insurance holder was found to have with cancer but medical teams could not identify which one. The customer was told it was unlikely the medical team would know for certain until he was dead.
Until the specialist doctors could diagnose what type of cancer he had, his life insurance company would not pay out. The policyholder’s family appealed realising that should he die, the plan would pay out a life insurance plan worth £25,000 rather than the critical illness planwhich was worth some £80,000 as only one policy was scheduled to pay out. The argument with the insurance company caused added stress to the client. After a report in the press, the insurer agreed with the client’s legal team and paid out on the policy.
Which?, previously known as the Consumers’ Association, said it thinks the situation is significantly more serious than the FSA claims and that sales of critical illness cover are at the centre of a far-reaching mis-selling problem.
Michael Chunkline, principal policy specialist, says brokers, commission-hungry advisors and finance companies, saw a chance to make considerable earnings. He said the Consumers’ Association had forecast the mis-selling that was common in the promotion of payment protection insurance and pensions and would be replicated in the critical illness business.
His predictions are on the back of complaints in in government regarding the mis-selling of critical illness policies. Simon Curzon, the MP, says the FSA’s study shows there is a significant risk that insurance are being sold to clients who don’t appreciate what they are buying or who don’t even need them. The MP wants rule changes at the FSA that would limit sales to financial advisers working under strict guidelines.
