Critical Illness Insurance

Life can throw us a curve-ball at any time. Your health may be good at the moment, but no one knows what’s around the corner.

Critical Illness Cover is an insurance product that can protect your earnings if you were unable to work due to serious illness or injury.

This article will outline how it works and what you should take into consideration before taking out this insurance.

What is Critical Illness Insurance?

Critical illness cover is designed to insure your finances should you develop a medical illness, injury, or disability, which prevents you from working. The policy will outline a number of specific medical conditions which can be covered under the insurance product. These conditions will vary from provider to provider, as well as the severity of illnesses. A payout of a tax-free lump sum is designed to help you adapt to your new lifestyle, as a result of developing a severe illness or disability. Often the payout will be substantial, as your premiums will be decided, in part, by how much your outstanding mortgage is. Also, the cover may be calculated by how much money you think you might need to take care of your dependents and other bills. Dependents are children under 18 who would suffer if you were unable to return to work.

Please Note: Critical Illness cover offers protection in severe, life-threatening, circumstances. It is, therefore, different to income protection insurance. With income protection, the cover is designed to supplement income in times of illness, with the hope that you would be able to return to work eventually. Find out more about Income Protection Insurance here.

What Illnesses are Covered by Critical Illness Insurance?

Some of the medical conditions covered by many policies include;

  • Some types and stages of cancer
  • Heart attack
  • Traumatic head injury
  • Organ transplants
  • Conditions like Parkinson’s Disease and Multiple Sclerosis

How Does Critical Illness Insurance Work?

This type of policy is designed to payout only once, in the form of a tax-free lump sum. After this, your policy will end. However, some deals will offer smaller payouts for less severe conditions.

Please Note: This type of insurance is not designed to payout upon the policy holder’s death, you may need to look at life insurance as an additional product to cover this. Find out more about the many different Life Insurance types here.

Do I Need Critical Illness Cover?

This form of financial protection would be suitable for the majority of workers. You can even find cover if you already have a medical condition. Although, please note, your premiums may be more expensive and not all providers can insure you.

Your employee package may already include some cover for sickness. This kind of protection is designed to supplement your existing ‘sick pay’ provisions.

Let’s Look at a Critical Illness Insurance Example:

Gerald took out critical illness insurance seven years ago, when he became self-employed. He paid £75 a month towards his premiums over the seven-year period, until one day he suffered an unexpected heart attack. Gerald was in good health up until that point, but he needed to claim on his critical illness cover, to keep up with his mortgage payments. Gerald was successful in his claim and received £155,000.

How is Critical Illness Cover Charged?

All critical illness providers will require you to answer some questions about your medical history before accepting you onto their plan. Some may ask you to take a medical examination, which can be arranged for a time and place that suits you best. You may also be asked about your family’s medical history, your general lifestyle habits, as well as your weight and occupation etc.

As a general trend, those who are younger, have an average BMI and do not smoke or drink heavily, will find that they will pay less in premiums for critical illness cover. This is, of course, dependent on the level of cover you wish to pay for.

It is vital that you answer the insurer’s questions honestly, as your answers will be used to calculate your premium payments. Plus, if you do become ill and make a claim and, for any reason, the information you supplied was proven to be false, you may invalidate your policy and receive nothing.

What are the Benefits of Critical Illness Insurance?

  • Quality of Life – If you develop a medical condition, you can use the funds released to adapt your home to suit your new living circumstances. You may need to purchase wheelchairs, therapeutic equipment etc. Already having the funding in place for these things will offer you peace of mind in new, difficult circumstances.
  • Bills Covered – You may develop a condition which requires you to take a long time out of work to recover. If you have a mortgage or bills, the payout from this cover can ease the stress on your finances, so you can concentrate on getting well.
  • Family Cover- Some critical illness policies can include children. So, if they were to develop an illness you’re covered for, support could be available for them too. This is of course dependent on the policy you choose.
  • State Benefits – With this insurance, you may still be able to claim benefits if you are not able to work.
  • Guaranteed Premiums Offered – Some insurers will offer guaranteed premiums for the length of the policy. This means you can effectively plan your household budget and ensure the cover is affordable for you. However, some products may charge high initial premiums, or payments may vary throughout the length of your insurance term. Make sure you read the policy’s fine print before signing up.

What are the Pitfalls of Critical Illness Insurance?

  • High Premium Cost- This type of insurance can charge high premiums, when compared with other types of insurance. This is because insurers need to minimise their risk, as claims will often go into the tens, if not hundreds of thousands of pounds.
  • You May Never Use It – There is the chance that you will never make a claim for this insurance.  You may pay into your policy for years, without ever seeing anything back.
  • Restrictions on Claims – Not every medical condition that renders a person unable to work will be insurable. You may find also that your condition will have to be severe to make a successful claim.
  • Family History – Some providers will not insure you for certain illnesses which your relatives may have suffered before.
  • Reviewable Policies – With some critical insurance products, the policies will be reviewed throughout the term. This means that the initially cheap premium rate may increase.

What are the Alternatives to Critical Illness Insurance?

  • Income Protection Insurance – This insurance also covers you in times of illness. However, the listed conditions are often less severe, for example, back pain.  You can also pay into income protection throughout your whole working life. Whereas with critical illness, your policy will end with one payout.
  • Life Insurance – This will not cover you in times of sickness, it will only payout on death. Or, in some instances, it will payout in cases of terminal illness, if the policyholder is expected to die within one year. However, if you have dependents, life insurance will protect them financially after you’re gone.
  • State Benefits – You may be entitled to benefits in times of sickness of disability. However, your eligibility will be decided by your income and whether or not you have dependents. State aid can only go so far and your benefits may be stopped if, under assessment, you are deemed fit to go back to any type of work.

You can receive a free, no-obligation Critical Illness Insurance quote, all you have to do is fill out this brief form, and an advisor will get back to you to assess your needs and find you the best cover.

I needed life insurance and critical illness for myself and my wife. I got a number of quotes from some of the big brands and was very happy with the final price. Mike Davidson, Birmingham

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