Guides: life and protection
Critical illness cover guide
Most people don’t like to contemplate what would happen if they were diagnosed with a critical illness, but not considering the future could mean that, should you survive such a catastrophic event, you may not have the financial cushion you need for everyday life.
Survival rates for many critical illnesses are on the up, and more and more people are enjoying life after overcoming such catastrophic conditions. This critical illness cover guide details how to make sure that surviving a major illness doesn’t result in financial hardship.
After surviving a critical illness, sufferers may not be able to return to work straight away (or ever), or may need home modifications or private therapeutic care. It is sad to contemplate a situation where someone survives a serious illness but fails to survive the ensuing financial hardship. Taking out insurance against death can help to ensure that your loved ones are financially secure should you pass away, but without critical insurance cover the cost of surviving such a condition could be disastrous.
What is critical illness cover?
Critical illness cover, either on its own or as part of a life assurance policy, pays out a lump sum when the policyholder is diagnosed with one of a number of predefined critical conditions such as a stroke, heart attack or advanced cancer. This money can be used to pay off your mortgage or other loans, so that there is less of a financial burden on your family while you recuperate or if you are unable to return to work. Alternatively, it can pay for travel expenses if you need treatment abroad, or modifications to your home if your illness leaves you disabled – it’s up to you.
What does critical illness insurance cover?
The number of possible illnesses that critical illness insurance covers varies from policy to policy. Some critical illness policies include long lists of critical conditions, but many of these conditions are rare, and critical illness insurance is really designed to cover the main causes of serious illness.
Cancer, heart attacks, strokes, multiple sclerosis, coronary artery bypass and benign brain tumours account for the majority of critical illness claims. However, cancer and heart attacks are by far the most common reasons for claiming among males. Policies will always provide cover for the more common conditions.
Cover is for serious illness only
When taking out insurance against illness, it is important to remember that it is designed to provide a financial cushion for people who are very ill and need financial support. Typically, the policy will not pay out for mild conditions. All the critical illnesses covered under the plan are defined in the policy document and it is these definitions that will be used to agree your claim.
Types of critical illness cover
There are a variety of different ways in which to cover yourself against illness, generally differing depending on whether you already have life assurance or not. Here is an outline of the main policy types:
Life assurance with critical illness
If you are arranging life assurance for you or your partner, ask your financial adviser about adding insurance against illness.
Most insurers can include a critical illness benefit with their life assurance plans whereby, for an additional premium, your policy will pay out on death OR on the diagnosis of one of a number of predefined critical illnesses. Under this arrangement, your policy would pay out if you were diagnosed with a critical illness such as a serious form of cancer. This would allow you to pay off your mortgage or use the lump sum to provide support for your family while you recover. However, your life cover would usually cease once this claim was made.
Buy-back options
Some policies incorporate a ‘buy-back’ option so that you can reinstate the death benefit under the plan and/or buy back the insurance against illness in case you or your partner succumbs to another critical condition and you have already claimed. This is particularly important if it is a joint policy, but will increase your premium. Otherwise, after a critical illness claim, the cover ceases.
Stand alone cover
If you already have life assurance cover, or you do not require life assurance for some reason (perhaps you are single and have no dependants), you can purchase stand alone critical illness cover. This type of policy pays out only if you get one of the critical illnesses covered under the plan.
Top tips for insuring against illness
- Make sure that you disclose all of the facts. Typically, you will not be covered for critical illnesses that you have already suffered, or for which you have family history. If you don’t tell the insurer all the facts, you may find that your claim is rejected.
- There are lots of policies to choose from, covering many different conditions. However, the policy covering the widest range of critical illnesses is not necessarily the best value for money. It is nice to have a wide range of cover, but many conditions are rare and you shouldn’t pay over the odds for what only seems like better cover. Speak with your adviser about the best policy for you.
- Some critical illness policies offer severity-based cover. Unlike traditional critical illness cover that pays out the full sum assured for very serious, life-threatening illness, severity-based cover makes lower payouts for less serious cases.
Critical illness cover can be a real help should the worst actually happen, and this critical illness cover guide should have explained some of the basics. Why not use our discussion forums to post any questions you may have on critical illness cover?
