The city regulator expressed its concern a few years ago that hundreds of thousands of people with insurance failed to comprehend what their policies covered. Those uncertainties remain.

The City Regulator, the Financial Services Authority (FSA) stated that data indicated that providers, including supermarkets, insurers, financial advisers and banksoften made little effort to understand if the cover was acceptable and no explanation was given to customers of how policies operates. While most companies were working to stick toenhanced standards, others continued to offer a poor service.

In the event that a stroke, cancer, heart diseaseor other listed life-threatening illnesses strike, critical illness cover,insurance pays out a lump sum. Almost without exception, it is those who are worried about paying off mortgage, debts and loans if they were unable to stay in work, who purchase these plans.

There are two types: those policies where the premium is fixed for ever (a guaranteed premium) and those where the payments increase over time. Figures from the Association of British Insurers prove that, alltogether, there are over of 4m insurance policies covering 12m customers. An average policy will pay out sixty eight thousand pounds.
These “protection” policies have proved to be controversial. While the ploicies arebeneficial, these “protection” policies have proved controversial and financial commentators allege that not many people make claims. There is no information available on the number of people claiming made vis-à-vis the total premiums paid. The city regulator, the Financial Services Authority review did reveal, however, that on average, 25 per cent of the claims made are not paid out.

Recently, in one case a plan holder was diagnosed with cancer but specialist could not identify which one. The plan holder was unfortunately told it was unlikely the cancer specialists would know for certain until he seven feet under.
Until a diagnosis was available, the insurer would not pay out. The policyholder’s wife appealed realising that should he die, the insurance company would pay out a life insurance policy worth £20,000 rather than the critical illness planwhich was worth some £80,000 as only one policy would pay out. The argument with the provider caused increased stress to the client. After a public fight, the insurance company gave in and paid out on the plan for critical illness.

The Consumers’ Association which publishes Which?,  said it thinks the situation is   more serious than the Financial Services Authority claims and that sales of critical illness arrangements are at the centre of a mis-selling situation.
Michael Chunkline, principal policy adviser, says finance companies, brokers and commission-hungry advisers, saw an opportunity to make considerable earnings. He said Which? had forecast the mis-selling that was seen in the pensions industry and would be replicated in the critical illness business.

His predictions are on the back of complaints in in the House of Commons regarding the mis-selling of critical illness policies. Gordon Duncastle, the MP, says the Financial Services Authority’s study proves that there is a high risk that plans are being sold to clients who do not appreciate what they are buying or who don’t even need them. The MP wants rule changes at the FSA that would restrict sales to be made by financial advisers working under stricter guidelines.

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