Why we're sick of being sold critical illness cover

Mortgage lenders are aggressively pushing massively over-priced critical illness insurance onto millions of customers. Their dubious sales tactics will be exposed tonight in an investigation by Channel 4 at 6pm.

Sales of critical illness policies - which pay out a lump sum if you are diagnosed as suffering from a "dread disease" - have soared in recent years, earning bumper profits for the lenders. Sales are up 50 per cent in the past five years, bringing in £2.4bn a year in premiums.

When Channel 4 took its undercover cameras into bank branches, it found that advisers routinely used emotional blackmail and misleading statistics to persuade buyers to take out a policy.

These policies earn the banks millions in commission, and in some cases mortgage staff are put under huge pressure to sell them - or face the sack. Undercover researchers from Which? separately found that:

Only one of 39 advisers asked enough about the researchers' situations and made the right recommendation.

Only three of 25 advisers who recommended critical illness policies, explained what was covered and what was not.

Of the 30 advisers who recommended some sort of cover, only 11 worked out how much the researchers could really afford.

Channel 4 tracked down a former adviser from a high street bank, named as "Chris". One year he missed his sales target by 5 per cent. "I was told I either had to have a pay cut, or face disciplinary proceedings which could ultimately lead to being sacked. It came as a bit of a shock after 21 years of unblemished service." He adds that although his bank described him as an "adviser", they were constantly told their jobs were about sales, not advice. In many cases a critical illness policy is entirely inappropriate for someone taking out a mortgage, and can cost 100-200 per cent above the price charged by independent brokers. An alternative policy, income protection, was rarely mentioned to the undercover reporters. Unlike critical illness, it pays a regular, monthly amount if you can't work, either because of sick ness or unemployment, which means it pays out more often. But the banks push critical illness because it can earn them nearly twice as much commission.

Critical illness was brought up during every visit by the Channel 4 researcher, Sam. A Halifax adviser told her that: "One in three people get a critical illness," a figure disputed by the programme's experts. An Abbey adviser used scare tactics, telling the story of a cus tomer who had refused to take out a policy, then had a heart attack and lost his home. A Barclays adviser was filmed ignoring the researcher's concerns that she could not afford the policy.

The Which? researchers found a similar story at the banks and mortgage advisers they visited. Some advisers more or less left it up to the researcher to decide what type of insurance or level of cover they needed. For example, an HSBC ad viser, instead of explaining how different types of insurance worked, said: "Most people are intelligent enough to make up their own mind."

Vincent Cable, Liberal Democrat treasury spokesman, says he is increasingly concerned about the mis-selling, which he has reported to the Office of Fair Trading. "It follows a pattern that we've seen with private pensions and endowments. People in banks are driven by incentives to oversell products very inappropriately to people who don't need them."

The banks disagreed that the sales were inappropriate, and said if there was any fault, it lay in the individual behaviour of staff who would be retrained. Barclays said: "We are concerned about the findings, as they do not appear to follow our standard sales process.

"Our staff are trained to undertake a thorough interview to ensure that the right products are offered and that the customer can afford them."

Halifax said: "We take these accusations very seriously. We will not tolerate mis-selling of any products."

Abbey told Channel 4: "We're sorry if, on this occasion, we could have explained the need for critical illness cover more sensitively with a more appropriate example, but we disagree that cover was irrelevant for a 29-year-old. Critical illness can strike at any age."

Here's what you can do

It took me just a couple of minutes to find a quote for a critical illness policy that was half the price charged by a high street bank.

I posed as a 34-year old non-smoker looking for a critical illness plan which would pay out £100,000 - enough to cover the typical mortgage - on diagnosis of a dread disease. Abbey gave me a quote of £37.98 per month for a 25-year plan where the payout decreases as the mortgage is gradually paid off. That means I would pay £11,394 over the life of the policy.

Halifax offered me £31.30 a month, equal to £9,390 over 25 years. I tried life-assurance-bureau.co.uk, one of the biggest insurance brokers on the net. It gave me a quote for the same cover for £19.69 per month, with the plan managed by Norwich Union.

That means I'd pay just £5,907 over the 25 years - saving around £5,000 on the plans offered by Abbey and Halifax, although the Abbey plan guaranteed that premiums would not rise. Most other critical illness policies have premiums which are reviewed every five years.

Managing director of life-assurance-bureau, Simon Challiner, said: "We can do this because we sacrifice 75 per cent of the commission. We reckon we beat everybody else on price and we're arranging hundreds of policies every week." Another broker I contacted, Life Search, gave me a quote for a policy of £24.01 a month, and promised to price-match the premium at other brokers.

If you have already taken out an expensive critical illness policy with a high street provider, there is nothing to stop you cancelling it and buying much cheaper cover from a broker. No-one is required to have critical illness as a condition of the mortgage, and in some cases a person's employee benefits package at work may be more than sufficient.

The premium you are quoted depends on your age and whether you have any pre-existing medical conditions. If you are over 40, or seeking cover above £250,000 or suffer from any conditions then a GP report is likely to be required.

Buyers should decide whether they may be better suited to an 'income protection policy' (sometimes called permanent health insurance) rather than critical illness.

Income protection pays a regular income designed to protect your standard of living if you suffer long-term sickness or injury. Benefit usually starts after a waiting period of four, 13, 26 or 52 weeks and is payable until you return to work, die or the policy term expires, whichever happens first. Life Search gave me a quote of £13.80 a month for an income of £700 per month - enough to keep paying off a £100,000 mortgage, and a lot cheaper than critical illness.

life-assurance-bureau.co.uk (01625 416280), lifesearch.co.uk (0800 316 3166)