Adrian Garside

I’ve just been given a sheet of statistics for critical illness claims of different insurance companies.

It makes for interesting reading, and may be quite useful for when it comes to selecting a company to provide Critical Illness cover for my clients.

So, the big thing about this style of cover is that people perceive that insurance companies wiggle on their claims and actually, the evidence is that this is either a ‘old problem’ or it was never a problem, but occasionally there is a big fuss when it happens, making it seem like a big problem.

Anyway, the 2009 figures show stats for 11 providers.

They show that the 11 paid out on between 88 and 93.6 of claims and that sounds pretty good. However, it does mean that between 6.4 and 12% of claims are rejected and that doesn’t seem so good. When you look at the ‘rejected’ figures, you’d probably want to be at the better end of the table.

There are 2 reasons for a company not paying out on a claim. The 1st is ‘non disclosure’ – where the insurance company didn’t have all the information up front. A good example is smokers saying they don’t smoke, but sometimes illnesses are ‘forgotten about’ too.

The other reason is that the critical illness in question wasn’t on the list of things covered, or maybe they were, but you weren’t ‘bad’ enough. Amputation of a limb is pretty clear cut, but the amputation has to be above the wrist or ankle – if it isn’t, and you claim, it will be rejected. The same with ‘total and permanent blindness’. If you become blind in one eye, if you claim, it will be rejected.

So, rejected claims aren’t necessarily a sinister thing, most people would take the attitude that ‘there’s no harm in trying’.

Non disclosure is probably not a problem these days either. Advisers, or certainly this adviser, is paranoid about non disclosure and makes his clients disclose every cough and sneeze.

My thought is that you’d expect all companies to have roughly the same experiences in both areas and they don’t. On the other hand, a ‘poorer’ company may have changed it’s processes or application form or definitions recently and have solved the problem.

I suspect, I’ll end up running league tables for my clients and if two companies have the similar premiums, and similar lists of critical illnesses, it could be one of the factors I could use to choose between the two.

I almost always recommend income protection insurance over critical illness insurance.

This is because Critical Illness insurances have a set list of illnesses, whereas Income Protection pays out on any illness that stops you working.

Now, there is a point that if money were no object you’d have both. But, since it is an object, what we have here is what causes the least financial danger.

If you have an illness that stops you working, but isn’t critical – stress for instance – then money will be a problem and income protection solves that.

If you have a critical illness that doesn’t stop you working, then you’ll wish you had critical illness cover – but it won’t be because you are in financial dire straits, it will be becuase everyone wants a huge chunk of money.

LV= have just issued their claims stats for this year – they do both types of insurance and as with other providers they show that Cancer is the biggest payout by far on Critical Illness policies.

For income protection the top four causes of  claims over the last 12 months were mental disorders (29%), musculoskeletal disorders (20%), circulatory system disorders (11%) and cancers (11%).

The 1st 2 are not covered on critical illness policies, the 3rd is a grey area.

The average age of a female income protection claimant was 44 years, with male claimants two years older on average at 46 years. This is older than the critical illness claims stats issued at the beginning of March by Bright Grey, which had males at 42 – that’s interesting.

For income protection, the average payout period was 8 years. And this is why I recommend it – if you need protection, this is the one that can be the most help.

Full story – http://www.dailymail.co.uk/news/article-1254881/Cigarettes-killed-Message-smoker-funeral-hearse.html

Albert Whittamore died from smoking, and now must be applauded for trying to get the message across and also answering the question that everyone asks when they see a hearse “I wonder what happened”

This trend could continue, and then you can imagine ‘one upmanship’ entering the equation – I will be amending my will to include instructions for “died spying for country while jumping across rooftops” to be on the sign in my hearse – I’m not taking my final journey with everyone knowing that I died playing a quick game of patience.

This fits with my oldest sons birth certificate, where I convinced the lady at the registry office that I was a ‘special agent’. Should keep geneologists guessing in years to come.

I am also now amending my divorce story from ‘we gradually drifted apart’ to “she caught me in bed with two women”…

I’m 41, I will be 42 very soon -  no cards please, but feel free to send cash!

So, anyway,  I’m innocently reading an article in the industry press about how critical illness insurance policies are paying out ‘properly’ now, instead of all the wiggling out of claims that used to go on. I’m reassured and feeling all warm and glowy and then they randomly drop in some stats…

The eye popping one is :  the average age of male critical illness claimants is…42.

Interestingly, the average age for women is 41 – so women live longer than men, but suffer critical illnesses earlier, that’s curious.

Here’s the article – http://www.mortgageintroducer.com/mortgages/236768/261/Protection/Bright_Grey%27s_CI_claims_payment_up.htm

And before you say – no, I’m not worried about becoming 42. And if anyone mentions ‘mid 40′s’ there will be bother.

This has to be the biggest Marketing Fail ever…

So, you know you sometimes get a charity envelope through the post – you know because there is a biro inside… Well, last week I had some Critical Illness cards in the post off one of the insurance companies.

I didn’t open them until today when I thought I’d give them to the kids to play with – expecting them to be an advert on one side and normal cards on the other.

But, no, I was wrong, this is Critical Illness Top Trumps!  You have, I guess, around 40 serious illnesses – Cancer, Stroke through to blindness and Loss of Limb.

I can tell you that Cancer (unnamed versions, some of the common ones get cards all to themselves) is tops for ‘Fatalities per Year’.  Prostate Cancer has the highest percentage effect on men (at 100%), Breast Cancer has the highest levels of claims, and ‘Total and permanent Blindness’ scores very highly in the ‘most letters category – they were obviously struggling at this stage.

So, while I washed up and  as Di looked on slightly aghast, the kids had a brief, and insensitive game where comments like “Oh, Coma is rubbish – 4 letters” and, in a triumphant tone “134,ooo deaths per year, I whooped you” became contextually acceptable.

I had hoped for some slight educational content, and I guess the company involved did try,  but the children instantly boiled it down to just the numbers for the sake of the game. And I applaud the concept of demystification and removing taboos, but I’m not sure these are a good idea just yet!

For most IFA’s the 1st thing we worry about for our clients is protecting their incomes against ill health or accident – if they have no income, most other planning we do for the client can fall by the wayside as soon as an illness strikes.

Your reaction, reading this is ‘EXPENSIVE’ and my reply is – surprisingly not.

Lets assume we have a 35 year old male desk worker, who gets 6 months sick pay from work.  He wants to make sure that his income of £36000 carried on until age 65 if he was off sick long term.  How much do you think he’d pay? Well, if he’s in good health now he could  pay less than £30pm. In fact there was a policy for less than £20pm if his job could be described as professional.

£20pm to make sure that if you got stress or some other illness your income is insured. That’s not expensive. Is it?

So, why doesn’t every person have this insurance?

Well, not everyone is a desk worker – lumberjacks would pay more, trawlermen would probably be declined if that program on Sky is anything to go by and lets not talk about Ice Road Truckers.

And not everyone gets 6 months sick pay, if you needed the insurance to kick in after 3 months you’d pay a tad more, although it is even cheaper if you get a whole years sick pay.

The thing that makes it cheap though, is that it pays out with no tax, so I don’t have to insure the full  £36000, I went for half that for the example – that’s £1500pm which, when added to state benefits that I would expect to be about £74pw would roughly match our man’s take home pay.

Critical Illness insurance is like Life Insurance in a way.  You know life insurance pays out if you die?  Critical Illness insurance pays out if you come quite close to dying, but you don’t  – so it pays out a lump sum if you are still alive.

This can be very handy, 9 times as many people could claim on critical illness insurance as life insurance, so you can imagine, alot of people decide they want this style of cover.

So, what is covered?

Well, that is the subject of the quiz. And to make it easier I’ll make it multiple guess.

a) 7

b) 23

c) 39

d) 154

The correct answer is …. it depends who you ask.

7 is the number of definitions the Association of British Insurers (ABI) says are ‘core illness’ that must be covered in a Critical Illness policy

23 is the number of illness the ABI have given standard definitions – almost all policies include these 23 illnesses.

39 is about the maximum number of illness you could expect available on a normal critical illness policy (the range is 30 – 39) You have to be a little bit careful about just looking at the number though – sometimes the insurance companies pad things out with really obscure illnesses so it doesn’t follow that a policy with 35 policies is tangibly worse than one with 36.

154 is the number of illness covered on Prudential’s new ‘serious illness cover’ – you should see the marketing literature – it’s based on the old ‘best man’s gag’ where he reads out the messages and a roll of paper unravells…

So, if you are thinking of buying critical illness cover, it would make sense to ensure your adviser (if for some crazy reason your adviser isn’t me!)  is including the Prudential policy in his comparisons – they have 2, one covers 154 illnesses, the other 93.

They are much cheaper than you’d expect.

It is fascinating to see statistics (OK, I admit this may be just me!)  that have no bias, emotion or manipulation attached – most statistics have one or more of those things, that’s what statistics are for after all. The money world can often provide these statistics, simply because what we are looking at is a dry list of numbers that have to be evidenced. Also, money doesn’t have to be politically correct.

The list in question is not controversial – Scottish Providents List of claims paid out on their Critical Illness policy between 1/1/09 and 30/06/09. Their only agenda is to show how much they pay out.

Scottish Provident are very proud of their payouts and I guess if you are going to pay out £43m in 6 months, I can’t blame them for wanting to tell everyone.

Clearly, I’m not going to report the whole brochure, here are some things that caught my eye. Oh, actually, before I do that, they told me about a case that really did amaze me.

She never paid a premium!

It concerned a lady who applied for Critical Illness Cover and during the application process discovered that she had breast cancer. Now, this was before Scots Prov had written to her to say ‘Yes, we are happy to insure you’, so way before she had said ‘Yes, I’ll start the policy’ and way way before she had even made a premium payment.

Scots Provident paid the claim.  They do that – while an application is in progress they provide free cover. I have asked for the rules on this, but I am impressed.

So, back to the stuff in the brochure. Firstly, we are all interested in whether these policies ‘do’ pay out.

They paid out on 591 claims.

They declined 46 claims. 38 of which were becuase the claim didn’t meet the definition. 8 becuase the client had forgotten to mention crucial things in the application form.

The 38 – is that important? Well, no, not really – I have seen clients who are ill and told them to “send in a claim, you never know…” – I daresay most advisers will. Sometimes it works and sometimes it doesn’t.

The 8 – in some ways I am sympathetic and some ways I’m not. As an adviser I have had clients tell me they don’t smoke, while they have a packet of Marlboro Lights showing in their top pocket. Or, memorably, the very young daughter saying “Yes, you do mummy!!!”  when her mum was denying smoking.  There are other cases where it is an innocent mistake and for those people I am sympathetic.

And just for some detail, of the 591 claims 62% were paid out on cancer.

Cancer Stats!

The immediate thing you see on the cancer stats is the top line of the claims breakdown which it turns out is a slightly macabre ‘cancer’ league table.

Out of 368 claims, 127 were for breast cancer. The next one down is Malignant Melanoma with 27, Testicular 22, Bowel 21, Prostate 21, Lung 13 and since there are another 30 or 40 lines I’m going to stop there.

The other thing that I was curious about was the split of claims men v women – well, it’s 49% men, 51% women, despite the extraordinary Breast Cancer stats.

The average age for cancer claims is 46, actually, that looks like the average claim for all adult illnesses – taking out children.

Children? I get a lump in my throat as usual at the prospects of children suffering, but they do become ill and have accidents (and before I dwell on it, they often cope better than adults) and most companies do provide cover for the children of policyholder.

There were 25 claims for children (in total, not only cancer) …average age 9 in the 6 month period.

Crumbs…

The thing is – I recommend Scottish Provident quite alot. It is good to see stats like this. The interesting thing about Scottish Provident is that I will often turn to them when cheaper companies have said No, or have raised the premium too high, or excluded important things. So, they have a good payout track record, but also, they aren’t just cherry picking the best clients, indeed, almost the reverse.

The practice has been involved in a flurry of claims on critical illness, terminal illness and income protection.

This can be very sad, but it is good to be able to help people in these situations.

Also, from a professional perspective it’s been interesting on two fronts.

Firstly, so far, the claims have all been paid by the insurance companies – this flies in the face of ‘popular opinion’ and is very good news for our customers but also very reassuring for us, it is easy to develop self doubt when offering these products.

Secondly, the thing that I have noticed is that some of the claimants are younger than me – and I’m only 41 – which reminds me how often young people decline to take recommended insurances becuase they feel immortal. I say that without making judgement – I did exactly the same

Separately, I had a visit from the Prudential this week – they have tweaked the small print on their Serious Illness Policy – and now it is a Seriously Good Policy (hmmm, maybe I should be in marketing…). It is like a critical illness policy, but there are illnesses that are serious, but not critical. In fact, I can break this down into numbers.

All the mainstream critical illness policies cover between 30 and 39 illnesses. The serious illness policy covers up to 135.

Examples? – Prostate Cancer – serious, but not critical. Diabetes – serious but not critical (BUPA cover one form of diabetes in their policy, but it’s the rare type)

If this tweaks your interest, give me a call. 01489784022 or e-mail me – adrian@adriangarside.co.uk

Yesterday I had the results of some tests and I don’t have cancer or diabetes, which is a relief of course, although curiously it does mean I either either have ‘something else’ or nothing, both options being quite unsettling.

Anyway, there is nothing like being tested for cancer to focus the mind and my initial thoughts were money based (actually, that’s a lie, but for the benefit of the blog lets pretend they were) and it occurs to me that there is plenty of support and help for people with serious illnesses, but the financial side of things needs to be looked at and probably in quite an unemotional kind of a way.

My objective here is to get into a position where you are feeling in control and making the most of what you have.

The first thing you need is 2 sheets of paper.

On the 1st put everything you have – savings, house,  etc. And everything you owe – credit cards, mortgage loans etc. Just as an idea put the credit limit by the balance of each credit card.

The second sheet is for income and expenditure – your bank statements will help here.

Next make a list of places you have worked and note which ones might have offered you a pension – possible if you worked there for over 2 years. Then make a list of insurance, savings or any other life policies you may have had.  If the insurance or pension company has changed its name or been taken over, the  Association of British Insurers http://www.abi.org.uk/Search/default.asp will tell you the latest name or new owner.

If you have shares, make a list. You can get the prices from a newspaper or the internet.

With pensions, ask who the Nominated Beneficiaries are – the people who will get that pension benefit if you die before taking them. This may need updating especially if you have married or now have children, for example.

Now the biggest questions.

How long have you been given or what are your chances?  Will you be able to continue working? Will you be able to travel or drive a car? Will you need care? Who might be able to help you?

If you have more than two years, then you might as well carry on as normal for as long as possible.   But if you have less than two years to live, it is time to think.  There is nothing sadder than dying thinking “If only”.  But strangely, a short life expectancy may enable you to achieve one or two of your goals, that you might not have bothered about otherwise.

Take another piece of paper, and write some headings: People, Things, Places. You might want to adapt this with headings like: Family, Colleagues, Hobbies, Sports. Now the fun part, and yes I mean you ought to be able to get some enjoyment out of this. What have you always wanted to do? Pretend you have won the Lottery and let your mind run free here and don’t bother about the practicalities. Keep the list handy and a notepad and pencil with you so you can write things down as they pop into your mind. It does not matter how long the list is or how many items are on it.

Once you have done the above exercises you will have:

A financial picture of you.

Your doctors have told how long you have got and what quality of life you can expect for that time.

A list of everything you wanted to achieve.

Achieving some of the goals will need money, but you may have more than you think, which is the real point behind this exercise.

The surprises here can be pensions & life policies. Critical Illness Benefit is where a lump-sum will be paid after the claim paperwork has been done and checked and covers many (but not all) cancers.   Most life insurance policies have Terminal Illness Benefit, This means that if your life expectancy is less than 12 months, they will pay out while you are alive. ( This will depend on what answers your GP gives to the insurance company)   I have a client who asked me to look through her paperwork and we found a policy with this benefit and it paid out this year for her.

Most policies I set up have a Waiver of Premium Benefit and will be kept in force by the insurance company if you are ill for over 6 months without you paying the monthly premiums. This will help your family more than you, but can give you peace of mind and save you the outgoing in the meantime.

Some pensions can be paid out in cash tax-free where life expectancy is a year or less which can seriously improve the quality of life for the short time left.

If it helps, get your adviser involved too.

The important point about the exercises above is that they can make you feel that you are back in control of your life again, and importantly give you the chance and focus to tick off some of those ambitions.