Defaqto has revealed that nearly 60% of critical illness policies now offer severity-based cover.

Critical illness cover pays out a lump sum benefit when the insured is diagnosed with one of a number of critical conditions defined in the policy. Traditionally, critical illness plans only cover severe cases and once the pay-out has been made the policy comes to an end.

According to Defaqto, there is now an increasing trend towards severity-based critical illness cover – where plans pay out a proportion of the sum assured depending on the seriousness of the diagnoses, and continue to provide cover for the more serious conditions.

Defaqto data shows that the number of policies offering severity-based cover has increased significantly in the last few years – from 14% at the end of 2009 to 59% currently.

Furthermore, the range of conditions covered by severity-based clauses has also increased – from just 10 in May 2012 to 30 in May this year. The most common severity-based cover is for breast cancer, with prostate cancer also typically covered. Other conditions covered include Crohn’s Disease, ulcerative colitis and conditions relating to the cardio vascular system.

Ben Heffer, insight analyst for life and protection at Defaqto, said: “Severity-based cover is a welcome addition to critical illness policies. First, they cater for situations where, while the illness is not critical, it nevertheless gives rise to a financial need.

“Second, people with a critical illness policy might expect to be able to claim on their policy for some of these illnesses even though they are not really serious enough to generate a full payment. However, the severity-based cover and level of benefit offered by each provider varies significantly.

“Critical illness cover is a complex product and it is still the case that these products are sold rather than bought by consumers. Our Star Ratings give people a high level view of the comprehensiveness of the different critical illness policies available, to support their research process – importantly, to achieve a 4 or 5 Star rating policies must provide cover for certain key conditions. Ultimately, however, it is crucial for people to read the documentation carefully to understand what a policy covers and, if required, seek advice before taking out a policy.”