Consumer group Which? has called critical illness a luxury product.
The report by Which? appeared in its May issue and said: “We believe that critical illness insurance is a luxury product and, for most people, it is more important you have adequate life insurance if you have dependants, and income protection, before thinking about taking out critical illness cover.”
Insurers disagree.
If there is no money left for insurance after paying the bills then it is a luxury. But for those with spare cash could be seen as an essential item. The higher your income, the bigger the financial blow if it stops.
According to leading reinsurer Munich Re, a man has a one in 12 chance of dying before age 65, a one in six chance of claiming on an income protection product and a one in four chance of suffering a critical illness before age 65.
On this basis, life cover is less important!
However, most income protection claims are for temporary periods of inability to work.
Death and critical illness are more long term.
Perhaps it is what type of insurance money is spent on that matters. Home and motor insurance are essentials. The very expensive and arguably poor value covers offered on extended warranties are not.
Claims figures and claims examples from critical illness insurers show that the product is not a luxury. They also show that all types of people can get ill.
If you bought every type of insurance the market tries to sell you, there would be nothing left for food and clothes.
Individuals should perhaps look at insurance the way many businesses do. Think of all the worst possible events. Then think of the effect on your family. Those risks where you can deal with any loss of income or pay the bills, do not insure. Those risks, which have a permanent effect on your family income, insure. Those where you can exist for a while if you have a problem, but not for a long period, insure but with a partial self-insurance/ co-insurance basis or a deferred period of weeks or months.
On critical illness it is difficult to offer co-insurance or a deferred period.
Another big argument on critical illness is what illnesses do you insure? Insurers don’t give you a choice, but you can partly choose by deciding which insurer to go with.
Some suggest that cancer only cover is the answer for those short of spare cash. Fine if you get cancer, but a real pig if you have a serious heart attack.
Consumer group views can be useful, but must be taken with a large pinch of salt .If you take their advice and ignore critical illness insurance, who is going to pay the bills if you are unlucky enough to suffer a serious illness? One thing is certain; it won’t be the consumer group who gave you the advice!
Critical illness insurance: Hot Topic: May 2007
