Standardisation of definitions of core diseases by the National Federation of Independent Financial Advisers, has helped remove some of the ambiguity which dogged earlier contracts. The newness of the market - policies started being sold in the UK in the late 1980s - means there is little actuarial data an which to base prices.Abbey Life has the greatest claims experience, having been in the business longer than most. As more companies sell it they adapt it to other products.The greatest growth at the moment comes from critical illness policies sold as part of life cover to accompany a mortgage. It estimates that some 350,000 new policies were sold last year, a 45 per cent increase over 1993. After cancellations the total number of policies in force is estimated at 700,000.Over the next five years ERI expects the critical illness market to grow by a compound 25 per cent a year. It appeals particularly to the self-employed who receive no company sick pay. The number of companies selling critical illness policies has risen to around 70, according to Employers Reassurance International, the largest reinsurer of UK critical illness policies. That way there will be no tax charge on the benefits - if they are paid to the policyholder a tax charge may result..

BY ALISON EADIE Critical illness cover, which pays out on diagnosis of specified diseases like cancer, heart attacks and strokes, is a new and fast-growing area of health insurance. A similar problem in critical illness policies, which pay out on diagnosis of a serious illness, has recently been resolved by agreement between the major providers on the medical definitions of the core diseases.Finally, if you are in the market for a policy, check that it is capable of making payments directly to the nursing or residential home. At present, although there are many similarities between companies, the definitions differ. "PPP would like to see long-term care policies regulated, and sold by profess- ional advisers only - it is not a simple product and those advising need to be properly qualified," he says.PPP would also like to see the definition of ADLs standardised. Sandy Johnstone says this option is often not taken up by policyholders who are being professionally advised, because their long-term care insurance will have been taken care of separately, but it is popular with other policyholders.The theme of professional advice is also taken up by Chris Cummings. This option is also offered by Prime Health, which is now owned by Standard Life.There is an option for a small element of life cover in the Commercial Union lump sum policy, designed to return a reducing proportion of the premium if the policyholder should die within five years.

But when they do claim they tend to do so at a younger age, so we have had fewer payments on a regular premium policy."Commercial Union also offer the option of cover for carers at home (at the policyholder's choice), rather than paying for nursing home fees. Sandy Johnstone explains: "Men are less likely to make a claim at all, which is why their cover costs less. Both the cost of the premiums and the level of cover provided escalate by 5 per cent a year. The alternative single premium, also giving escalating cover, would be £9,700 for a woman or £5,376 for a man.The difference in premiums for men and women may seem surprising, particularly since the lump sum is reduced by more than the monthly premiums. With Commercial Union this would cost £38.25 a month for a 55-year-old woman or £27.90 a month for a 55 year old man. What they need is an extra cushion to cover the additional costs of nursing home care."He also advises potential customers to consider the cost of care in their area, rather than a national average - for example the cost of care in the East Midlands is only three quarters of that for Greater London.The average level of cover is for about £5,000 a year, to top up the policyholder's income when care is needed, rather than for the full cost of the nursing home fees.