Critical time for sickness insurance

If you consult a financial adviser, the chances are that you will be advised to take out critical illness cover. Unless you are made of money, you will probably be rather taken aback at the cost, which could easily be £50 a month, depending on your circumstances. But some of the arguments in its favour sound persuasive - certainly persuasive enough to encourage 780,000 people to start paying for this cover in 1999, according to insurer Swiss Re.

You could well be quoted horrible statistics. 'One in four men will suffer a critical illness by the time they reach pension age,' says Peter Kelly of Allied Dunbar, which last week announced a tie-up with charity Imperial Cancer Research on its critical illness cover. 'One in five women will suffer a critical illness. That could be a heart attack, for instance, cancer or a stroke.' He adds that a 40-year-old man is 2.5 times more likely to suffer one of these serious medical conditions than he is to die.

Researchers are also increasingly detecting a link between excessive working hours and critical illnesses. Basing their argument on this sort of data, many financial advisers are promoting critical illness cover just as heavily as life cover. Kevin Morgan, medical cover specialist at financial adviser Litecastle, says: 'Single people or young couples probably have little need for life assurance. But there is now a great deal more interest in critical illness cover than life cover. People are surviving illnesses that even a generation ago would have killed. And if you buy critical illness cover, you get the benefit of it yourself - unlike life cover.'

The insurance entitles you to a tax-free lump sum payout on the diagnosis of one of these nasties. So if you suffer a stroke, for instance, you could spend the money on adapting your home so you can live there more easily. An industry-wide agreement, unveiled last year, has introduced standard terms and definitions, making it easier for people to know what they are buying and their position if they need to claim. You can spend the money from a claim on whatever you want. One Allied Dunbar customer who suffered a brain tumour spent some of his cash on a fitted kitchen and also set part of it aside to cover future tax bills. But since the vast majority of buyers take it when they get a new mortgage, most policyholders seem to want it to pay off their mortgage and other financial commitments.

Against this kind of argument, however, you could say that people who look after themselves well are less likely to suffer from these conditions. 'Smoking causes almost one in five coronary heart disease deaths,' explains the British Heart Foundation on its website. 'If you are under 50 and smoke, your risk of heart attack is up to ten times that of a non-smoker.'

And if you keep your salt intake down, do not get overweight, eat your fruit and vegetables, drink sensibly and take exercise, you are less likely to be one of the 300,000 people a year who suffer a heart attack (of whom about half survive).

It is also impossible to predict the future incidence of these conditions. About 100,000 people a year have a first stroke, according to the Stroke Association. Survival rates could increase substantially, according to its research, if, for instance, the Government sets up more Stroke Units, teams which can provide specialist emergency and rehabilitation treatment. Similarly, your likelihood of getting a heart attack could be reduced if, for example, more money is put into prevention, screening and earlier diagnosis.

However, it has to be said that more of us could suffer these illnesses as medical and pharmaceutical treatment improves, and our life expectancy increases. In a 1998 report for the Stroke Association, Professor Nick Bosanquet of Imperial College concluded: 'Numbers of patients with strokes needing longer-term support are increasing. We are achieving health promotion targets in reducing immediate mortality from stroke, but there is a new challenge of longer-term disability.'

Thinking about these risks, you may conclude that you would buy the insurance if you could easily afford it. But, as Charles Levett-Scrivener of financial adviser Towry Law says, the premiums can be quite substantial: 'The people who really need critical illness cover are parents and other people with dependents. But parents don't have a great deal of spare income, and they have other insurances to deal with, life cover and saving for retirement.'

On top of this, critical illness is a new kind of product - developed only in 1986 in South Africa by Dr Marius Barnard, brother of heart transplant pioneer Christian. This means that insurers have only 14 years of experience on claims. It could be that some of them have been over-cautious and have charged more than they needed to. Morgan, however, estimates that premiums have come down by about 10 per cent in the past year - 'mostly because of competition'.

Customers are also often given a better deal if they buy a critical illness policy on top of another product. Most sales used to be on the back of mortgage endowment policies, but since far fewer of these are now being sold, insurers are increasingly selling them in conjunction with more straightforward 'term' and 'whole of life' insurance policies. For instance, a 45-year old non-smoking woman paying for cover of £100,000 from Allied Dunbar would pay £57 a month for a combined critical illness and term assurance plan. If she bought the two products separately, she would pay 30 per cent more.

But you may still decide that the premiums are just too expensive. After all, as the Allied Dunbar statistics imply, the majority of people, at least 75 per cent of them, look unlikely to contract one of these illnesses until after pension age.

By that time, they have probably paid off their mortgage and have fewer financial commitments. And if you had put the money you could have spent on premiums into a pension, you could have a tidy sum awaiting you.

Even if you did contract something unpleasant, you would have that extra pension money to draw on. You could have accumulated £60,000 by investing £50 a month over the past 20 years in a with-profits pension plan, according to Your Pension magazine.

Young, free and... healthy

'Young people need to think about critical illness
cover because so many of them own their own
homes,' says a spokeswoman for Scottish Mutual,
one of the market leaders. Insurers and financial
advisers are very eager to sell these policies to
the young. But are the young pouring their
premiums down the drain?

By and large, the medical statistics suggest the
common-sense conclusion most of us would come
to: your risk of contracting a critical illness grows
as you get older. About 41 per cent of NHS
hospital treatment is for people aged over 65.
Research from the Stroke Association indicates
that only 10 per cent of the people who suffer a
first stroke each year in England and Wales are
under 55. The incidence of heart attacks follows
increasing age, according to the British Heart
Foundation. Only 13 per cent of male heart attack
sufferers are below 65 (7 per cent of female
sufferers).

Of course, not all illnesses show this correlation.
Aids, for instance, has been more of a young
person's affliction (although it is usually excluded
from critical illness policies). But - as the
spokeswoman for Scottish Mutual suggests - although the risk for twenty- and thirty-somethings may be lower, they are probably more financially
exposed than older people.