Summary
Some of those with critical illness insurance plans do not really understand how these plans opperate. There are arguments for more stringent guidelines on the presentation of such insurance cover. Consumers need plenty of information on insurance which best suit their individual needs.

The main financial regulating body made known its apprehensions a few years ago that hundreds of thousands ofpeople with insurance did not appreciate what their policies covered. Those worries are still valid.

The  the Financial Services Authority, the city regulator commentated that data indicated that insurance providers, including supermarkets, financial advisers, banks and insurersoften made no effort to understand if the insurance was appropriate and inadequate information was presented to customers of how the plans work. While most firms were working to adhere to higher standards, others continued to offer an inadequate service.

In the event that a stroke, heart attack, canceror other specified life-threatening illnesses strike, critical illness cover,insurance pays out a lump sum. Almost without exception, it is people who are concerned about repaying mortgage, debts and loans if they become unable to continue working, who buy these cheapest mortgage life policies.

There are two kinds: where the monthly premiums increase over the years and those with a guaranteed fixed monthly premium. Figures from the ABI prove that, all together, there are more than of five million plans covering twelve million customers. An average life insurance quote will pay out £65,000.

These “protection” plans have proved controversial. While the ploicies can bevery useful, these “protection” insurance arrangements have proved controversial and financial commentators observe that not many people make claims. There are no figures available on the number of claims made vis-à-vis the total money spent on the policies. The city regulator, the FSA, review did reveal, however, that on average, 24% of the claims made are declined.

In one situation recently a insurance holder was found to have with cancer but medical specialists could not identify which one. The customer was told it was unlikely the cancer consultants would know for certain until he was six feet under.

Until a diagnosis was available, the life insurance company would not pay out. The claimant’s financial advisers appealed realising that should he die, the policy would pay out a life insurance policy worth twenty five thousand pounds rather than the critical illness plan which was worth eighty five thousand pounds as only one policy was planned to pay out. The argument with the insurer caused infinitely more stress to the plan holders.

After a very public argument, the insurance company agreed with the client’s legal team and paid out on the policy for critical illness.

A spokesman from the Consumers’ Association,  said it thinks the situation is much more serious than the Financial Services Authority claims and that sales of critical illness plans are at the centre of a far-reaching mis-selling scandal.

John Beer, principal policy adviser, says commission-hungry advisors, finance companies and brokers, saw an opportunity to make  a big pay off. He said the Consumers’ Association had said the mis-selling was seen with payment protection insurance and would be replicated in the critical illness business.

His comments are on the back of complaints in  amongst Members of Parliament regarding the mis-selling of critical illness policies. Edward Blank, the MP, says the Financial Services Authority’s study proves that there is a significant risk that insurance are being sold to clients who fail to understand what they are buying or who don’t even need them. The MP wants rule changes that would limit sales of critical illnes policies to financial advisers working under especially strict FSA guidelines.