Critical success

Since the first critical illness plan was launched in the UK in 1980, it has been a protection success story with around 100 plans currently available and close on 1 million new policies being issued in 2001.

The tendency has been for critical illness cover to be arranged in conjunction with a mortgage and, since the decline in the popularity of low cost endowments, a majority of plans are arranged on a fixed-term basis as an acceleration of life cover.

As the market for critical illness cover has developed, so too have the techniques used to diagnose the conditions that give rise to a claim. This means that, with early detection of illnesses, particularly cancer, becoming easier, claims against these plans are expected to increase.

The industry has recognised this fact and, as well as redefining some conditions, providers are increasing premium rates and modifying guarantees.

Guaranteed rates
Being a relatively new area of business, solid claims experience has been limited. This has resulted in advisers tending towards recommending guaranteed premium rates to clients, however, as the cost of guarantees increases and their availability diminishes, some feel that this market may become unsustainable.

Unlike the commoditised term life assurance market, critical illness cover has never been particularly price sensitive. Concerns that premium increases will stifle it may therefore be unduly pessimistic, after all, if a client needed this type of protection before the recent price increases, it remains an appropriate recommendation now and perhaps the real issues to be addressed by advisers are prioritisation and affordability.

Financial planning almost always revolves round providing solutions to potential income/expenditure shortfalls. Many of the solutions require pre-funding and, therefore, income is fundamental to the success of any long-term strategy.

Income protection would seem to be top of the list in terms of adviser recommendations, but the relatively low levels of business written in this area suggests otherwise.

Many reasons have been put forward for the lack of interest in income protection, such as product complexity, rigorous underwriting, cost or client perceptions of state benefits. Despite these objections, the need for cover remains.

It is possible that advisers have placed too much emphasis on recommending maximum benefits payable after the shortest deferred period resulting in unattractive premiums. By using expenditure as the starting point and covering the short term risk with a personal accident and sickness plan, the cost of cover can be dramatically reduced.

The greatest benefit offered by private medical insurance (PMI) is choice, choice in when, where and how treatment is received. Broadly speaking PMI plans fall into three categories: