PRIVATE HEALTH CARE A SPECIAL REPORT: CRITICAL ILLNESS: Policies carry people through serious illness

Critical illness insurance, which pays out on diagnosis of diseases like cancer, heart attacks and strokes, is a small but growing sector of health cover and continues to attract new providers. Recent entrants include Marks & Spencer and NatWest bank. Peter Baxter, marketing director of NatWest Life, said, "Our research showed three times as many people are concerned about the possibility of serious illness as worry about death and twice as many worry about illness as being made redundant."

For those worrying about the human form of Mad Cow Disease, relief is at hand. Skandia Life was quick to point out that its cover for pre-senile dementia would include Creutzfeldt-Jakob Disease, whereas policies covering only Alzheimer's Disease would rule it out.

Some 70 companies sell 180 different contract types, according to Employers Reassurance International, the largest reinsurer of UK critical illness policies. It estimates there were 900,000 policies in force at the end of last year.

The cover is of most value to the self-employed, who receive no company sick pay, and is increasingly sold with life cover to accompany a mortgage. It can protect families on a joint life basis, paying out if a non-earning spouse is ill and unable to look after children. Critical illness can be bought as stand-alone cover or in conjunction with life assurances. Total permanent disability cover is often added in for nothing or a little extra premium. Policies can be for the whole of life or for a set term.

Scottish Provident offers a five year renewable option where premiums are adjusted upwards with age. Skandia Life fixes premiums for 10 years and then adjusts for age. Many companies sell contracts with inflation linked premiums and benefits.

The range of diseases covered is another area of variation. Abbey Life, which has the greatest claims experience having been in the business longer than most, says 86 per cent of its payouts have been for cancer, heart attacks or strokes. Its Living Assurance Select policy restricts claims to the big three illnesses and as a result costs half as much as comprehensive cover. Living Assurance, the comprehensive option, includes many more medical conditions, loss of physical independence and terminal illness benefit.

Abbey also offers a "selected period" allowing policyholders to choose any 10-to-35 year period up to the age of 75 to opt for a higher level of cover. For example a non-smoking woman aged 31 next birthday could buy pounds 50,000 of comprehensive illness and death cover to last her life for pounds 128.24 a month, or select a 10 year period and pay pounds l4.39 a month. After 10 years the sum assured would drop to pounds 16,569.

Viva, a policy from Pinnacle Insurance, similarly restricts cover and costs less. Designed for women, it protects against breast and cervical cancer. The maximum cash benefit is pounds 16,000 and a typical monthly premium for a women of 30 is pounds 11.50.

Prime Health tries to keep premiums low through matching payouts to need. Prime Critical Care pays out 25 per cent of total benefits 30 days after diagnosis. Those returning to work after a few weeks receive no more, but those unable to go back to work for a continuous 12 months receive a further 25 per cent. Those permanently disabled would receive the full benefit.

Some critical illness policies automatically cover children. Skandia Life claims to be the first insurer to add bacterial meningitis to its list. BUPA also provides free cover for children.