Critical definitions

An insurance policy document is hardly a good bedtime read - they are long, confusing and dull. Critical illness policies, which are designed to pay out a lump sum if you die or develop a permanent illness, generally win the prize for being the most confusing, because they contain so many exclusions and conditions. But the insurance industry is at least attempting to make them clearer, even if it cannot make them more interesting. The Association of British Insurers (ABI) has given critical illness insurance companies 12 months to shape up their policies.

The new rules dictate that companies must give a standard description of what critical illness covers. They must also give more descriptive definitions of the kinds of illness that will justify a payout.

But giving more detailed descriptions in the policy could mean that if there is a dispute over a claim, the consumer will have a smaller chance of obtaining any redress from the insurer or from the Financial Ombudsman Service. It may not seem fair, but if the insurer makes the policy as clear as possible and you are unhappy with its decision if it does not pay out on a claim, no matter how dull the reading, it is up to you to do it. 

Under most policy terms, it is no good just having cancer, your cancer must be defined as a "less advanced" case, before your insurer will payout. Likewise, Alzheimer's disease diagnosed before a certain age must result in "permanent" symptoms. A claim made for an HIV infection will only be honoured if the virus was caught "in the UK from a blood transfusion, a physical assault or at work in an eligible occupation." How "less advanced" cancer cases are defined, or what is an "eligible" occupation, do not have to be explained.

One of the few things that someone with a critical illness policy who has been diagnosed with a life-threatening disease should be able to take comfort from is that they and their families will not have to worry about money.  But in the past, many people with these policies who have been diagnosed with a serious illness have had their claims refused, often over quibbles about the permanency of their condition, or how well their illness fits the accepted definitions. Frequently, this is because the permanency of their condition cannot be proven medically, even if it does turn out to be permanent.

Clarifying the policy documents will not make critical illness policies better fundamentally. Whether the information about what kinds of cancer are covered is on page 4 or 14 of the document is kind of irrelevant if a) no one reads the thing properly anyway, and b) the chances of a payout or compensation are smaller, not greater.

Protection insurance specialists Lifesearch recommend that more often than not, income protection policies are a better bet that critical illness, as they cover a number of eventualities that prevent you from working, and not just critical illnesses.