Great Mortgage Insurance Blog

Summary
Many of those with critical illness insurance plans do not really apprehend how these policies function. There are appeals for more stringent guidelines on the marketing of such policies. Ordinary people need plenty of information on insurance products which best suit their individual needs.

The main financial regulating body published its apprehensions a few years ago that many thousands of insurance holders failed to appreciate what their insurance covered. Those worries are still valid.

The City Regulator, the Financial Services Authority announced that industry data showed that insurance companies, including supermarkets, financial advisers, banks and insurers often made no effort to establish if the life insurance policy was appropriate and inadequate explanation was presented to customers of how the policies work. While most companies were working to stick to enhanced standards, others carried on offering a poor service.

In the event that heart disease, stroke, cancer or other specified life-threatening illnesses strike, critical illness cover, insurance pays out a lump cash sum. Usually, it is those who are concerned about repaying debts if they become unable to remain working, who buy this cover.

There are two kinds of policy: those with a guaranteed fixed premium each month and those where the monthly payments increase over time.

Figures from the ABI indicate that, in total, there are in excess of four million insurance plans covering 12m policyholders. An average policy will pay out £67,000.

These “protection” policies have proved to have critics. While the plans might bevery benefitial, these “protection” plans have proved controversial and critics say that not many people make a claim. There is no information available on the numbers of policyholders making a claim made contrasted against the total expenditure on the premiums. The city regulator, the FSA, review did demonstrate, however, that on average, twenty five per cent of the claims made are not paid out.

Recently, in one situation a client was found to have with cancer but medical teams could not say which one. The client was regretably informed it was unlikely the cancer consultants would know for certain until he had passed away. Until the medical team could be certain what type of cancer he had, his insurance plan would not pay out. The policyholder’s financial advisers appealed realising that should he die, the insurer would pay out a life assurance plan worth £15,000 rather than the critical illness policywhich was worth eighty five thousand pounds as only one policy would pay out. The argument with the underwriters caused infinitely more stress to the plan holder. After a public fight, the insurance company agreed with the policyholder’s advisers and paid out on the critical illness plan.

Which?, now known as the Consumers’ Association,  said it thinks the situation is considerably more serious than the City Regulator claims and that sales of critical illness policies are at the centre of a far-reaching mis-selling problem.

Mick McAteer, principal policy advisor, says brokers, commission-hungry advisors and finance companies, saw  a good chance to make excellent earnings. He said the Consumers’ Association had predicted the mis-selling that was seen in the pensions industry and would be replicated in the critical illness sector.

His forecasts are on the back of complaints in in parliament regarding the mis-selling of critical illness policies. Simon Curzon, the MP, says the FSA’s study reveals there is a big risk that insurance policies are being sold to consumers who do not appreciate what they are buying or who don’t even need them. The MP wants the Financial Services Authotity to make changes to its rules that would limit sales to financial advisers working under strict guidelines.

Summary
Protection Insurance is a necessary product, will it become more popular? The Insurance Companies are now taking the right steps. We hope they will be successful. Read this article to find out what is now happening in the insurance market.

Not many expert financial advisers would disagree that life cover should be the basis of most peoples financial planning whether it be safeguarding against the consequences of premature death, long term illness, accident or (particularly now with the arrival of the credit crunch) cover for unemployment.

Life assurance cover is justifiably the root of financial planning whether it be used to insure your home owner loan or give a tax free lump sum for your dependants in the event of your death. Unhappily, some other forms of protection insurance have a less enviable reputation. Payment Protection insurance has a name for being miss-sold and critical illness cover has formally suffered from uncontrolled policy exclusions which enabled the insurers to refuse a large number of claims, even if they seemed legitimate.

But over the last few weeks a shimmer of light emerged when Scottish Provident gave out its 1st half figures on the result of claims on its critical illness insurance policies. These figures appear to mean that at last the problem of unintended disclosure of medical information when the policy application is concluded, is being resolved.

Some years ago critical illness insurance claims were being time after time refused on the merest hint that the client had omitted any minor medical detail – even a foot infection or a sore throat! According to the figures presented by Standard Life, their claim refusals have come down sharply from 6.7% the previous year to 1.5% in the previous 6 months.

Why has this happened? LV, Scottish Equitable, Norwich Union, Scottish Provident, Axa, and Friends Provident  have initiated a collection of changes designed to diminish their refusal rates. They start off with an extremely clear explanation of the importance of full medical revelation right down to when they last visited their Doctor no matter how minor the reason. And some insurance companies such as LV get a medically trained person to telephone each potential client to discuss their medical history in detail. Then when the policy goes on risk, some insurance companies are reminding the insurance holders of the importance of full medical disclosure and giving them the option of correcting or adding the details on their submission.

If the new details are considered as increasing the insurer’s risk, then the life insurance company will certainlywithout doubt raise the monthly premium – but that’s certainly far better than paying the previous premium for years and years and then getting a claim refused.

The insurers should have taken  this action a long time ago as their slow coach method has damaged the public’s perception of protection insurance. But there is an undoubted need for protection insurance so let us hope that it achieves the recognition its so rightly warrants.