My life insurance policy for my mortgage has critical illness included and I am being asked to change my policy to another for a cheaper premium. Is that a good idea or is cheaper likely to mean less cover?

Unlike life insurance, which has little variations, critical illness cover has considerable different levels of cover and you should be very careful. I would seek independent financial advice from a fee based adviser to ensure you are not just another victim of ‘product churn’. Product churn is where a financial adviser stops one policy in pursuit of selling another. In fairness, it's often in pursuit of commission but that’s why I mention fee based advice above.

There is little to go wrong here but before you stop one life insurance policy to go to another, check a few points. Firstly, don’t stop any life insurance policy until the other is accepted as you could find that your health has deteriorated in between times and you may not get accepted on the new plan at the normal rates or even at all. If you had stopped your original plan you may well find that you are left without any life insurance or the ability to get life cover at all.

Secondly, check that the policies are the same. A common, but cheap trick is to sell you life insurance that is on reviewable terms i.e. they can review the life insurance cost at any point in the future and that would almost certainly be upwards. Most plans are written as guaranteed so the premium never changes.

And so to your critical illness plan. Critical illness is often an add-on policy that is sold to you alongside a mortgage but for many you will not be covered for what you think you are. Critical illness pays out a lump sum in the event that an individual is diagnosed with a serious illness rather than life insurance which pays out simply if you die. An example of the conditions that are covered are heart attack, benign tumours, blindness, cancer, coma, heart valve replacement and cover for surgery and total and permanent disability cover to name just a few.

Most people will be reasonably apathetic on the basis that making the decision to set up a critical illness plan alone is a stressful enough occasion but they may well be shocked when they come to the point of claiming.

For instance, what do the words 'heart attack' mean to you? To me it's straight forward: Your doctor says 'unlucky, you have had a heart attack'. But some providers don’t see it that way. And what is your definition of a coma or total and permanent disability?  Surely a coma is straight forward? If you have fallen into a coma you should be able to claim. And surely total and permanent disability means you have been told you are unable to work which should therefore mean you are able to claim on this aspect of your critical illness plan. If only life was indeed that easy.

Some companies place a stipulation for example, that the claimant has to have been in a coma for 96 hours or more to claim. So if a claimant just had critical illness cover with no life insurance and died after 95 hours in a coma, they would get no payment at all.

Also for total and permanent disability some companies define this as being unable to do your own job so as long as you can be seen to be unable to do your own job then you are covered. Others however, will pay out if you are unable to do 'any' job. So a builder who could answer the phone and be a receptionist would not be able to claim.

It is well worth checking all your plans with a fee based independent financial adviser, but initially it’s worth knowing that the better firms with the best coverage are Aegon, AXA, Bright Grey, Bupa, Fortis, Legal and General, PruProtect and Scottish Provident. If your plan is not with any of these organisations you should review it.

For a free review or a fact sheet on critical illness call peter on 0845 230 9876, e-mail

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Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
The above represents the personal opinions of Peter McGahan.
All information is based on our understanding of current tax practices, which are subject to change.

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