Compare Critical Illness Insurance

The starting-point for a critical illness insurance contract is a proposal form. The policy in itself is the expression of a contract between the purchaser of the policy and the company. This contract is based on the information given in the proposal form, and if this information is later proved to be false the company will be within its legal rights in repudiating the contract or reducing the benefits payable. It is important, therefore, to answer all questions on the proposal form as accurately as possible.

Apart from annuities, where quotations are based on age attained, most critical illness insurance policies are issued on the basis of age next birthday. In other words, the premium rate applicable depends on different conditions. (Exceptions may be made if the last birthday is very recent. In this case, the policy may be “backdated” by the payment of a premium for the year just past, and the premium rate will then be that applicable to the age at this last birthday.) A false statement of age upsets the company’s carefully calculated estimates of mortality and claims. If age is understated, it means the company is getting less in premiums than it needs to build up reserves for future claims. An incorrect statement of age on a proposal form will often come to light when a claim is made, for some companies require proof of age at this time. This is more likely to be the case where there is a death claim and the age on the death certificate does not match that in the policy.

Critical illness insurance policies fall outside those provisions of the Unfair Contract Terms Act 1978 which relate to “avoidance of liability”. However, concerned offices have come to an agreement with the Department of Trade that they will include in their proposal forms a warning of the consequences of non-disclosure. As already noted, if material facts (normally health or occupational risk) are not disclosed, the office will be within its rights in refusing to meet a claim or in reducing the benefits payable.

The aim is to minimize risk by switching the proportion of money invested in the different sectors according to current conditions and the investment outlook. In practice, this is not as easy as it sounds, because, as we have seen, large blocks of property are not easily marketable and the same can apply to shares. Nevertheless, the spreading of invest­ments across a wider range of assets does provide some protection against extreme fluctuations in anyone sector.

These investment or “bond” funds have achieved their success largely as a result of their tax advantages, which derive from the tax position of critical illness insurance companies. The income from investments in the fund is taxed at the rates appropriate to critical illness insurance companies. That is at the basic rate of income tax on income from shares and at 37.5% on income from other investments. This income is not distributed, but is accumulated within the fund or “rolled up” to earn a greater return for investors.

For a higher-rate taxpayer this alone carries considerable advantages. If one is liable to income tax at 50% or 60% or even more, then the ability to “roll up” the income from an investment without any personal tax liability is extremely useful. Instead of investing in the normal way and paying the consequent rate of income tax, the income is auto­matically taxed at the lower rate within the fund. In the case of gilt-edged, for example, someone paying tax at 65% would get a net return of only 4.2% from a stock yielding 12% before tax. If the individual invested in a gilt fund, the fund would pay tax at only 37.5% and would have 7.5% after tax to reinvest for him. Over a period of years the reinvestment of income can produce sizeable investment gains.

While bonds therefore provide an advantage for higher rate taxpayers investing in income-producing media, they are not so efficient when it comes to capital gains. Critical illness insurance companies pay tax at 30% on realised profits. Critical illness insurance can indeed be useful.

When taking a critical illness insurance, the coverage amount decided at first is what you will get after you make a successful claim. For your claim to be successful, you need to ensure that the disease claimed for is mentioned in your critical illness insurance policy. Also, you need to ensure that you have disclosed every fact about your medical status to your insurers. Hereditary diseases including the reasons why you had visited a doctor either in the past or recently have to be revealed. Additionally, you need to undergo a waiting time of around 28 days for critical illness insurance to disburse the cash lump sum to you or any other individuals mentioned as per your agreement.

In case you die within the waiting period, critical illness insurance may not award any money and terminates, unless you have bought death benefit riders. Such riders are very useful in the sense that they still provide benefits if death has occurred. In other words, these riders protect the premiums contributed towards critical illness insurance. Therefore, it is an advantage to buy such a rider as your family would be assured that they will be protected financially even during the occurrence of death. Besides, critical illness insurance can be combined with life insurance to similarly ascertain that benefits would be gained even during death of the insured.

Before you buy a critical illness insurance policy, a good practice would be to compare many different schemes. Critical illness insurance policies differ from one company to the other, so it would make sense to see where you would get the most advantageous policy. A significant thing to look at is the number of diseases covered.  It would be better to have a critical illness insurance plan that can cover you for many different ailments. This increases your chances of getting covered. A fine means to get a superior critical illness insurance policy is to go online and find brokers. By doing this, you would increase the frequency of availing the policy that suits you best.