Exposed: The so-called critical illness 'protection' policies that fail to live up to their name

The inconsistency in the quality of critical illness cover has been highlighted in recent days by the case of Hein Pretorius, 44, who was involved in a motorcycle accident in August last year

Breadwinners are unwittingly spending hundreds of pounds a year on financial protection insurance that is not fit for purpose.

The Mail on Sunday has established that a rump of life insurance companies continue to sell so-called ‘critical illness’ policies that impose such onerous terms and conditions that making a successful claim for some serious illnesses is nigh on impossible.

They do not pay out on many illnesses or injuries that people in the street would deem ‘critical’.

Tellingly, unlike rivals, those same companies decline to publish claims statistics, including the percentage of claims that are rejected every year – fuelling suspicions that their attitude is draconian.

NFU Mutual and Foresters are among the worst offenders.

Also, insurers across the industry are refusing to inform long-standing customers that their cover is now inferior to that offered in new policies they are selling – and that it is in their best interest to upgrade.

Leading broker Alan Lakey, of Highclere Financial Services, accuses some insurers of undermining the case for protection insurance and making a mockery of the term ‘critical’.

He also says the Association of British Insurers, the trade body representing the interests of the multi-billion pound industry, has done little to ensure the cover sold by its members is of satisfactory quality.

He describes the ‘statement of best practice’ the association published in late 2014 as ‘lamentable’. This document spells out the critical illnesses that insurers’ policies should cover and is promoted as helping to ‘protect’ consumers.

Lakey says it is so watered down that it allows insurers not to pay out for illnesses most people would consider ‘critical’. The inconsistency in the quality of critical illness cover has been highlighted in recent days by the case of Hein Pretorius, 44, who was involved in a motorcycle accident in August last year.

Hein, a father-of-three from Tunbridge Wells, Kent, suffered two broken legs and a broken pelvis after being struck by an oncoming vehicle on his way to work as a manager at a hospitality company. Were it not for a passing medic who tended to him before an ambulance arrived, he might have died.

His injuries were so serious that he had to have his right leg amputated below the knee. He also lost his job, as he struggled to recover from his life-changing injuries.

Having critical illness cover with both Legal & General and Bright Grey (part of insurer Royal London), he assumed he would receive the tax-free lump sums the policies promised, giving his family all-important financial protection.

Heartless: Hein Pretorius' two insurers refused to pay him and his family as he lost only one limb

Escape clause: NFU Mutual’s policies have exclusions that mean it does not have to pay out. The insurer says it is now reviewing these

But both insurers refused to pay up, stating the policies that Hein had taken out covered the loss of two limbs – not just one. The Financial Ombudsman Service, which arbitrates in such disputes, has backed the stance of both companies. Despite that ruling, neither insurer has ruled out meeting Hein’s claim in the future, depending upon the extent of his recovery.

Hein says: ‘When I took out the policies I was much younger and not as financially knowledgeable as I now am. I thought the cover would protect me financially from all serious illnesses and injuries. I had no idea that the amputation of one limb would not be deemed critical.’

Most insurers now sell cover that will pay out on the loss of one limb. But this change applies only to new policies – not long-established ones like Hein’s, which he took out more than seven years ago. So thousands of breadwinners could have similar inferior cover to Hein.

Lakey says: ‘There is no duty put on insurers to inform existing customers that they have improved their policies or that it would probably be best for them to upgrade. Some brokers are also reluctant to get involved for fear of falling foul of the regulator. It’s a dog’s dinner.’

What is more of a scandal, says Lakey, is that both NFU Mutual – an insurer that prides itself on its network of branches and commitment to the farming community – and Foresters are still selling insurance that will not pay out for the loss of a limb. NFU Mutual’s policy, for example, states that any claim for loss of hands or feet will only be met if there has been ‘physical severance of any combination of two or more hands or feet at or above the wrist or ankle joints’.

On Friday, the insurer said: ‘We are in the process of reviewing our protection range, including our critical illness offering, and are looking to improve on the number of conditions covered and the terms on which a claim can be made – including for the loss of a limb.’

Foresters takes the same stance on amputation claims. On Friday, it defended its policy by saying it was only abiding by the ‘statement of best practice’ laid down by the ABI, which says companies must pay out when two limbs are lost.

Both companies, along with other insurers such as Phoenix Life and Reassure, do not publish statistics on the number of critical illness claims rejected. 

Terrible: What is more of a scandal, says Lakey, is that both NFU Mutual – an insurer that prides itself on its network of branches and commitment to the farming community – and Foresters are still selling insurance that will not pay out for the loss of a limb

This is in contrast to mainstream providers, such as Legal & General and Zurich, which do. Tomorrow, Zurich will confirm that last year it met 92 per cent of critical illness claims, paying out £65 million. Unlike NFU Mutual and Foresters, it pays out if a policyholder loses one limb. Peter Hamilton, spokesman for the insurer, says: ‘By publishing our claims statistics, we send a loud and clear message that the vast majority of claims are paid quickly and smoothly.’

On Friday, the ABI said: ‘Our statement of best practice is reviewed every three years. When reviewed, it is open for public consultation. We encourage people to check what their policies cover and to speak to a broker about the right policy for them.’

From life insurance to income cover, find everything you need to know about getting the right policy here.

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