Critical illness insurance used to be thought of as a way of paying off a mortgage if the owner of the policy, usually the primary breadwinner of the household, became ill.
However, when the mortgage market started to flag and life insurance premiums plummeted, the rates for critical illness insurance have remained at pre-recession rates. £100,000 of life insurance costs around £12 but if CI cover is added to the policy, the premium jumps up to around £80.
Roger Edwards from Bright Grey has suggested that buying a critical illness protection policy of £25,000 could be the solution. This would probably add another £12 to the life insurance premium, but would make CI more affordable. If it was offered as an add-on to life insurance, maybe more people would be willing to purchase this valuable cover.
This seems like a sensible solution especially when you consider that some insurers are putting up the cost of CI further. Legal & General recently increased the cost of their policies by 19% and Swiss Life by 24%. Other firms, such as Liverpool Victoria and Norwich Union have increased prices by up to 60%.
There are also suggestions that the definition of critical illness might change in the future. Insurance company officials say that advancements in medical technology mean that some illnesses that used to be life threatening are no longer so and policies may change to reflect this.
A lot of consumers are confused about the different types of protection insurance policies offer, according to Defaqto. In particular, confusion reigns over the differences between income protection and critical illness cover. Some people believe you need one or the other whereas they should actually be seen as complementary products.
Contractors who are considering taking out any form of insurance policy would benefit from independent financial advice to ensure they get the cover tailored for their circumstances.
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