What is this with profit critical illness insurance ?
The choice of company for a withprofit critical illness insurance policy is a good deal more important than in the case of different or other less reputed forms of critical illness insurance plans. Historical results show that, over a 25-year term, maturity values of with-profit critical illness insurance policies have varied by as much as 35%. A man aged 39 in 1952 paying £10 a month over 25 years could have received as much as £7,300 or as little as £4,800 in 1977 at maturity of a 25-year with-profit plan.
Many people are puzzled and even dismayed by this sort of disparity. It arises as a result of two main factors, both of which are worth looking at more closely to better understand certain concepts. The prime determinant of the amount you receive at the maturity of a with-profit critical illness insurance policy is the skill of the investment managers of the insurance company you have chosen. It is their job, in conjunction with the company’s actuaries, to maximize the return from the investment of funds for the benefit of policyholders. In doing so they must take account of the likely pattern of future claims so that there is always ready money to meet them without having to sell off investments at an unpropitious time.
Besides, they must also assess the current prospects for the major investment sectors into which they put money: shares, fixed-interest investments and property. If they put too much into one sector which then fares badly compared with the others, the returns to the critical illness insurance policyholders will be lower than they might have been. On the other hand, they are dealing with very large sums of money - often tens or hundreds of millions of pounds - and they cannot simply liquidate all their property assets or shareholdings, even if they wanted to. To a large extent they are “locked in” to substantial shareholdings and property investments, and their normal practice is to make investment decisions on a long-term basis, not with the aim of taking a quick profit.
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