Critical Illness Articles
What Type of Premium Should You Choose for Critical Illness Cover ?
As critical illness cover grows in popularity, more and more Britons are becoming insured under this type of financial protection. In fact, more than 6 million UK residents have a form of critical illness cover.
Critical illness cover pays a lump sum to an insured who is diagnosed with a covered illness or injury and survives through the stated waiting period for benefits, usually an average of 15 to 30 days. The average claim payout is about £52,000. About half of all critical illness claims are for a diagnosis of some form of cancer, and about 22% of all critical illness claims are by men who suffer heart attacks.
However, not all of the insured pay the same premium rates, and some pay much more than others with the same policy.
Flexible vs. Guaranteed Premiums
In the early first decade of the 21st century, critical illness started becoming popular. Insurance companies offered critical illness plans with large benefits and flexible premium payment options. An insured could choose a guaranteed premium where they would pay the same each month for the term of the policy or a flexible premium which could decrease or increase. Unfortunately, both the insurers and consumers lost the bet of future claims.
Even while critical illness insurers had extremely high claim rejection rates at about 20% to 22%, they still paid out more in claims than they projected. As a result, flexible payments rose more than 60%!
Today, when you are choosing between flexible or guaranteed premiums, the cost continues to be the main difference. Initially, flexible premiums appear to be more affordable than guaranteed premiums. However, in the long-term, guaranteed premiums are the most cost-effective. Flexible premiums will likely rise over the course of the policy’s lifetime, as the rates are revised every five years.
The Rising Payouts for Critical Illness Cover
Why was there such a discrepancy between the insurance companies’ expectations and the reality of the pay outs? Thanks to the advances in medical technology and treatment, more and more people are able to survive a critical illness, such as heart attacks, cancer, multiple sclerosis, stroke, or major organ failure or transplant. Treatment for these illnesses allows patients to recover and lead a normal life, or at least recover and have a comfortable life.
However, the cost of technology has pushed up the cost of cover. A rush of claims over the last few years has insurers expecting to pay out even more in the future. All these factors forced insurers to sharply increase the premium costs charged to policyholders.
Average Critical Illness Cover Costs
On average, the premium for a critical illness cover is £50 per month. There are several variables that can influence the cost of your premium, such as :
- Age
- Sex
- Personal health history
- Body Mass Index (BMI)
- Family medical history
- Occupation
- Lifestyle
- Results of your medical physical
If you are in the market for critical illness cover, check with your independent financial advisor about what policy is best for you, and whether a fixed or flexible premium would be in your best interest.
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