Planning to survive a critical illness

PRIVATE HEALTH: SPECIAL REPORT Jane Suiter looks at the policies to protect against a major illness

You are far more likely to suffer a heart attack or stroke than you might expect. And, if you thought this was something to worry about when you reach your 60s, you'd be wrong.

Many victims are still under 40 when the unthinkable happens. The average age of claimants is 42, according to insurance company Norwich Union.

John Joseph, an independent adviser specialising in critical illness insurance, says that since the advent of life assurance more than 200 years ago, no single development in personal and business protection has been so radical.

Critical illness insurance pays out a lump sum if you are diagnosed with an illness from a list drawn up by the insurance company. The plans usuallyoffer cover for six main diseases but some offer far more. The six are cancer, heart attack, stroke, coronary artery bypass surgery, kidney failure and major organ transplant.

Critical illness policies are often used as added protection for a mortgage with the lump sum being used to pay off the outstanding debt.

Even though critical illness insurance is less expensive than many other types of cover on the market, including permanent health insurance, many people continue to ignore the product. In fact, less than two per cent of the population has critical illness cover.

With advances in medical science we are far more likely to survive a major illness than ever before. In the UK every year, 600,000 people suffer a critical illness, and most survive. Roddy Kohn, an independent adviser with Bristol-based Kohn Cougar points out that 50 years ago people did not need critical illness cover as they were unlikely to survive a serious heart attack. But today the odds are in favour of survival.

Mr Kohn and Mr Joseph also both point out that there are no state benefits to help people who have suffered a serious illness. Add that to the fact you are likely to be off work for some time should disaster strike and you could be left in a perilous state financially.

The stress this induces, especially if it leads to mortgage arrears building up, can also have implications for the length of time it takes to recover, says Mr Kohn.

Even your pension can be affected. If you haven't opted for a waiver of premium while recovering you could be faced with a reduction in income and the prospect of retirement on much lower pension.

Even life cover could be in danger. After suffering a critical illness most people will be more aware than ever of their own mortality. Maintaining cover will be essential but the premiums could become unaffordable. Once lost, life assurance may never be available again. Even if it were, underwriters may insist on far greater premiums as a result of your health record.

In the past many people felt uneasy with the cover. The insurers had a reputation for not paying up. In fact, this was because all the companies used different definitions of illness. For example, a heart attack may have required an elevation of over 50 per cent in cardiac enzymes with one company and another would not include that criterion.

Most major providers have now agreed to standard definition of critical illness. Look for IFAA approval when buying the cover.

The one area where there is still room for confusion is under total permanent disability. Companies can offer three levels of cover. "Any occupation" means you have to be incapable of doing any job. So a dentist could be told he's still capable of sweeping the streets. "Normal occupation or any suitable occupation" is another popular option. Under this cover education, training and experience will be taken into account. Finally, "normal occupation" which means that you have to be incapable of doing your usual job.

Norwich Union says that the vast majority of claims are for the big three illnesses - cancer, heart attacks and strokes. But many plans also cover Alzheimers, brain damage, diabetes, multiple sclerosis, Parkinson's and rheumatoid arthritis. It is important to check that any illness you are worried about is covered. And it is worthwhile consulting an independent financial adviser, to guide you through the maze.

Alternatively, an independent guide is published by Professional Connections which outlines all the terms, conditions and prices for all the IFAA-approved policies.

Critical illness cover comes in a number of different guises. It can be bought for a specified amount of time, say 10 or 25 years. This is usually cheaper than the whole of life version. The cover can also be added to an endowment policy to cover your mortgage. This is a halfway house between the two former types of cover and normally guarantees your mortgage will be paid off should you suffer any serious illness.

The better policies on the market include those provided by Axa Equity & Law, Pegasus, Scottish Provident and Skandia Life for whole of life cover and Canada Life for term cover. All of these cover all the major illnesses and are very flexible. Most also offer children's benefit. This covers dependent children between the ages of three and 18 against many critical illnesses.

But there are other products that cover a wide variety and may be cheaper. At the end of the day it is down to personal choice.

Annual premiums for a whole of life plan range from pounds 150 to pounds 414 for a male aged 30 depending on the illnesses covered and whether or not life cover is included.

Cover for a set amount of time comes in much cheaper. A 39-year-old man will pay pounds 48.20 a month with Canada Life, or pounds 43.55 with Pegasus for 10 years cover. There can also be big differences, for example Guardian's 10-year plan for a male aged 30 costs the same as a 30-year plan from Prime Health.

The Guide to Critical Illness Assurance is available from Professional Connections Publishing for pounds 120. Telephone: 0171-487 4111.