Mike Armstrong asked:


Critical illness insurance may pay out a tax free lump sum when you are diagnosed with a critical illness acceptable to your insurance company. The money obtained from the insurance can help you sort out part of debts and financial obligations you may have got. Often in such cases where a person is suffering from a critical illness his income is lost for a lapse of time as he cannot attend work. Critical illness insurance has now become one of the most popular forms of insurance. Let’s have a look at its evolution during the past decade.

According to Swiss Re Life & Health, 2000, sales of critical illness policies as compared to regular life insurance policies could have raised from 3.5 percent in 1991 to 23.6 percent in 1998. As a matter of fact, anyone would think that critical illness cover meant real business at that time. But that was not the case. 85 percent of critical illness was combined with whole life, endowment or term insurance. The remaining 15 percent were more likely to be stand alone critical illness covers. Moreover, out of the 85 percent, 40 percent were likely to be term insurance, 12 percent could have been whole life insurance and 48 percent may have been endowment policies. The average sum insured could have been GBP 47,000 on term insurance, GBP 68,000 on whole life and GBP 35,000 on endowment policies.

According to Dinani A and others (March 2000) “A Critical Review”, if critical illness cover did not exist an elevated amount of sale could have still been made as whole life insurance policies. It can also be said that the success of critical illness cover could have been as a rider benefit. The rider benefit met therefore consumer needs appropriately and also enabled providers to get more value from each sale.

As per Somerville S, 2000, probably the major cause for the popularity of critical illness cover was its sale alongside mortgage insurance. Critical illness cover sale was relatively easy with mortgage. Paying out debts should a critical illness occur was easy to explain to people. People thus found it an effective type of policy. Also, the low cost of adding critical illness cover to mortgage made it simple for providers to book certain sales. Therefore this led to 14 percent of mortgage insurance sold with critical illness cover of the total mortgage policy sales in the year 1994. By the year 1998, the rate of critical illness cover used as a rider to mortgage had increased to 42 percent.

According to Somerville S, 2000, the above context applies equally to term insurance with mortgage. Term insurance with critical illness was used since the year 1980. It was not until the year 1996 that this type of policy became popular by brokers as they then used it alongside with mortgage insurance. Mortgage related term insurance with critical illness has now become demanding over the insurance market. It can be represented as 43 percent of mortgage related term insurance with critical illness.