What is Critical Illness?
Critical Illness cover is a type of insurance that’ll pay you a tax-free cash lump sum if you’re diagnosed with or require surgery for a condition defined in your insurer's cover.
This type of insurance could help ease the financial burden on you and your loved ones at a difficult time, when you may not be able to work. The money could help you maintain your standard of living while you’re ill and help pay the bills while you’re getting back on your feet. And it might help you pay for private medical care, or to see a consultant who specialises in your condition. It could even help to pay for alterations to your home.
How does critical illness insurance work?
Critical illness cover pays out whilst you’re alive, on diagnosis of a specified illness. It will pay out a tax-free lump sum, usually fixed at the outset (although some policies allow for a monthly payment). There will generally be a survival window before any money is paid out, for example some insurers will require you survive the diagnosis by 30 days before any money is paid. The main purpose of critical illness cover is to keep your life on track if illness strikes, it can help clear debt, fund private medical treatment, adapt your home, replace lost income or reduce your working hours.
Critical illness cover can be purchased as a standalone insurance cover or it can be combined with life insurance. When you combine them both you have the added protection that your family will receive a cash lump sum if you die during the lifetime of the cover. Remember, that with a combined critical illness and life insurance cover it’ll only pay out once on either death or critical illness, whatever occurs earliest.
Life Insurance and critical illness insurance
Both types of insurance are designed to protect the people that matter most, but they pay out at very different moments.
Life insurance pays on your death (or on a terminal illness diagnosis). It will pay out a one-off tax-free lump sum (again, it can sometimes be set up to pay out in monthly instalments, through what’s known as a Family Income Benefit plan). Its main purpose is to provide financial security to loved ones on your death. It can allow them to repay a mortgage or other debts, cover funeral costs or just be a legacy.
Income protection vs critical illness
Income protection is a salary safety net, it pays a percentage of your salary – typically 60-70% of your pre-tax earnings – if you’re unable to work because of an illness or injury each month.
Its main purpose is to provide a replacement to lost income allowing you to cover mortgage or rent, utilities, food and childcare costs. Income protection tends to offer much broader coverage as the policy pays out based on your inability to work because of an illness or injury.
Do you need critical illness cover for a mortgage?
A mortgage application can be approved without critical illness cover, but many people do choose to take out this cover because a mortgage is usually their biggest monthly commitment. If a serious illness such as cancer, heart attached or stroke stopped you working, the lump sum could help to clear some or all of the outstanding loan, keep the mortgage repayments going while you recover, or fund any modifications needed to help you stay in your home. So, while it
isn't compulsory like buildings insurance, critical illness cover is strongly worth considering alongside life insurance and income protection to make sure your roof – and ownership of it – remains if the unexpected happens.
What critical illnesses are covered?
It’s important to remember that not all medical illnesses are covered, and you’ll need to meet the definition stated in your provider’s cover before you can receive a payout.
Some insurance companies also offer children’s critical illness cover. While nobody wants to think about their child becoming critically ill, it unfortunately does happen. As well as the emotional stress this puts parents through there are often significant financial concerns too, from changes in daily living costs and loss of earnings due to hospital visits and caring for a sick child.
Children’s critical illness cover works in the same way as adult cover, but there are often additional medical conditions, specific to children from birth or if there has been a complication during pregnancy.
How much critical illness cover do you need?
There are a few things to think about when working out how much cover you’ll need:
- Your monthly essentials like paying for rent or your mortgage
- How much might be required to pay for any private medical costs or rehabilitation needs
- A desired amount of coverage for potential home modifications
- Your current savings and other assets.
You should also think about whether your financial position could change in the future and whether you might have more financial commitments on the horizon.
Ultimately, to ensure that you get the right type of insurance for your requirements you should speak to a financial advisor.
Is critical illness cover worth it
The value ultimately depends on your personal circumstances, but for most households, critical illness cover delivers the breathing space and choices at a time when their focus should rightly be on their health and family, not worrying about money.
How much is critical illness cover
Critical illness cover costs will vary depending on several factors including:
- Your age and health
- The sum assured
- The term of the cover
- Smoker status and lifestyle
- Optional features
Everyone's financials, health history and priorities are different which is why an important step in getting the right cover for you is to speak to a qualified protection adviser.
