Review Critical Illness Cover

Since the late 1960s, a different type of linked critical illness insurance policy has been available. Here the investment is in a building society: a different medium with its own attractions. The critical illness insurance policies are not “unitised” but operate on a similar principle to those we have already discussed. The advantage of using a critical illness insurance policy to invest in a building society is that tax relief on the premiums increases the return from a given rate of interest, while critical illness cover is provided as is a preferential position in the mortgage queue. Finally, some critical illness insurance policies, unlike the vast majority of regular premium contracts, may be encashed without surrender penalties from the fourth year onwards and are therefore suitable for people whose saving needs are strictly short-term ones.

The number of building society-linked plans now runs to 60 or more and every large society and several large insurance companies are involved. The plans are very simple. You pay your premium each month to the insurance company. The company deducts a small amount to pay for critical illness cover (usually at a level of 100 times the monthly premium) and its expenses. The rest is then invested in a specified building society at a slightly lower rate of interest than is payable on normal share accounts.

The critical illness insurance policies are in theory for 10 years, but after the fourth year the policyholder can surrender the policy without penalties and achieve an attractive investment return. The actual return will depend on the interest rate paid by the society over the period, and this may vary quite substantially, as it has in recent years. But the return to the critical illness insurance policyholder will be net of tax (except for the higher-rate taxpayer who may have to pay extra tax if he surrenders within the first 7% years of the l0-year term) and will always be higher than he could have got by putting the money directly into a building society, because of the tax relief on the premiums.

Obviously the claims paid on a critical illness insurance policy will relate directly to the company you decide to take the plan out with. As some providers will cover some illnesses that others dont. However there are core condtions in the majority of contracts that are the majority of claims that get paid out. The majorty of the claims made are on cancer. This then can be broken down into the different types of cancer that people can be affected by. The most claimed on type is breast cancer then malignant melanoma, prostrate, cervical, testicluar and bowel cancer. The second most popular claim is heart attack and this is mainly by males with stroke once again affecting the males a close thrid.

It is important to look at the claims statistics of the company you are considering taking a contract with as they can vary greatly. Afterall you dont want to take a contract with a company that has a poor record of paying out as it will be like wasting your money.