Future-proofing plan wins insurers critical approval

Critical illness insurance should form part of everyone's protection portfolio. While you can argue that a single person with no dependants doesn't need life insurance, anyone can develop a critical disease that hits their finances.

This type of policy was originally developed to provide cash to help out at this most stressful of times - perhaps to pay off the mortgage or other debts, to pay for nursing care or to make adaptations to the home.

But advances in medical diagnosis and treatment have meant that some diseases can now be diagnosed much earlier and treated much more effectively.

This means that in some cases, critical illness insurance has become less of a vital help in times of need and more of a windfall. More important, the insurance has become more expensive - as insurers are collecting fewer premiums before they pay out on a policy, the monthly cost is pushed up instead.

Further advances in medicine will only exacerbate the situation until eventually critical illness insurance becomes too expensive to buy. So it is good that the insurance industry is acting now to keep this valuable protection affordable. But it is even more welcome that while most respondents to an Association of British Insurers consultation approve of 'future-proofing' policies, the majority seem to have rejected the idea of two levels of cover for cancer.

Critical illness policies contain lots of confusing medical terminology, and expecting financial advisers or their clients to be able to work out whether a definition means serious or critical is asking for trouble.

Such a policy would lead to disappointed and disillusioned claimants, and advisers facing more accusations of mis-selling - something the insurance industry can surely do without.

No one can pretend to be surprised that the levy for the Pension Protection Fund (PPF), at £575 million, is almost twice the amount anticipated when this scheme was set up earlier this year. Cash reported last June that the shortfalls on the largest 342 final salary schemes run by UK private sector employers were estimated to be £85 billion.

Few of those companies will actually go bust and need to have their pension funds bailed out by the PPF. But its chairman, Lawrence Churchill, has admitted this year's levy has been kept low, and that it will rise next year.

Sadly, because the PPF is funded by the final salary funds themselves, there is only one possible outcome: employers still running these schemes will use this as the last excuse they need to close them. Expect more bad news on occupational pensions next year.