Critical Illness Cover - Problems With 'Unexpected' Price Reviews
April 2005
HSBC has shocked its Critical Illness Clients by bumping premiums up to 30% higher. The average increase of 18% is due to claims skyrocketing (up over 80%). Critical Illness Cover provides a one off tax-free sum in the event of a serious health problem such as cancer or a heart attack. In most cases the cover is bought to pay off a mortgage due to ill health.
Note that Critical Illness Cover differs from Income Replacement cover or Permanent Health Insurance which provide a regular income while the policyholder cannot work.
A 25 Year Period That's Reviewable Each Year!
HSBC is 100% within their rights to increase the premiums because the policies are all 'reviewable' but this is where the Financial Ombudsman Service is getting involved. It has recently started to question the 'appropriateness of offering annually reviewable rates on a policy designed to run over a 25 year period'.
The Ombudsman certainly has a very valid point because it seems that companies such as HSBC can only ever win leaving clients fuming at the perceived greed. Especially when the bank in question recently reported profits of over £10 billion!
Reviewable & Guaranteed Cover
Standard Critical Illness Cover offers two routes, Reviewable and Guaranteed.
A reviewable plan is similar to HSBC, every year premiums can be increased or decreased (unlikely). But with a guaranteed plan the monthly premium cannot change over time.
Note that guaranteed policies are normally always more expensive (typically by 30%) but then one is also buying peace of mind from finance firms who in the UK are often rightly noted as being overly greedy.
Do Your Research
So if you're looking for Critical Illness Cover what can you do to make sure you have the best deal and are not surprised with inflation busting premium increases?
It's a 6 step process
- Do your research and homework and make sure you understand the different types of critical illness cover especially reviewable and guaranteed policies
- Use an independent financial advisor (but also realise they may make more commission from selling one product over another, ask them for their commission payment schedules). NEVER take the first policy that is offered to you.
- Look at what is covered and what isn't in DETAIL. Some policies cover just a few medical conditions, others cover 30+
- If you have a family check to see if the policy covers them as well
- Make sure your cover lasts long enough, usually the length of any mortgage
- Critical Illness Cover is not the only form of protection insurance, also look at Income Protection and Income Replacement Policies. This is why it's often best to use an independent financial advisor
See Also
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