Being diagnosed with a serious illness or disability can be a huge shock. It can also have a huge impact on your finances if you have to give up work as a result.
Having a critical illness cover in place can provide valuable financial support and help relieve some of the stress of the situation. Here’s how it works.
What is the critical illness cover?
Critical illness coverage is a type of insurance policy that pays a lump sum tax-free if you are diagnosed with a medical condition or injury listed on the policy. The proceeds can be used however you like, whether it’s to pay for private medical treatment, cover household bills, or make alterations to your home — if you need a wheelchair, for example.
The terms of the document can range from two years to 50 years. But if you make a successful claim during that time, your coverage will automatically expire and you will not be able to claim again.
What diseases are covered by the critical illness policy?
The number and type of terms covered depends on your insurance company and your policy, so check carefully. At a minimum, your policy should cover cancer, heart attack, and stroke. But the most comprehensive policies will cover about 50 conditions, including:
- Parkinson’s disease
- Alzheimer’s disease
- multiple sclerosis
- traumatic head injury
- Renal failure
- organ transplant.
Critical illness can also cover you if you’ve suffered a severe disability following an injury or illness. And some policies will cover your children, although coverage levels are usually half of the sum insured on your policy.
Are there other exceptions?
As with any insurance policy, there will be exceptions to be aware of when applying for critical illness coverage. Not all policies will cover all cancers, for example, especially some early-stage cancers.
Alternatively, your insurance company may offer partial payments, such as 25% or 50% of the sum insured. Check your policy details carefully to make sure you know what is covered.
Covid-19 has been ruled out as a serious illness because most people recover fully and are not usually as helpless as they might be with another illness. But if, as a result of Covid-19, you develop a condition classified as a critical illness, you should be able to file a claim.
Likewise, you may receive compensation if you are required to stay in intensive care as part of your treatment.
Incurable disease, defined as a condition with a life expectancy of less than 12 months, is another common exclusion. For terminal illness coverage, you will need to take out a separate life insurance policy.
Finally, if you are at risk for a particular condition due to existing health problems, some insurance companies will exclude that condition from your coverage.
Do I need critical illness coverage?
Critical illness coverage can be valuable if you live with a partner or have dependents who depend on you financially. But it’s also worth considering if you live alone.
Should a serious diagnosis force you to stop working, the proceeds of a critical illness policy can help cover home bills or even enable you to get private medical treatment. This can make an already stressful time a little easier.
Keep in mind that although an employer may offer a certain level of sick pay, employees are usually transferred to the statutory sick pay (SSP) system within six months. With less than £100 a week, this is not likely to be enough to make up for your income if you are unable to work.
Self-employed persons do not qualify for the SSP and are therefore obligated to rely on their own resources and arrangements.
How much does critical illness coverage cost?
The cost of critical illness coverage depends on a variety of factors. These include:
- Coverage amount – The higher the level of coverage, the more you will pay
- age – As you get older, the risk of disease increases, resulting in a higher cost of coverage
- Lifestyle factors such as smoking and alcohol consumption – Can increase the cost of coverage
- Health and medical history You will pay less if you are healthy.
- occupation Some jobs are at higher risk than others, which increases your premiums.
Pre-existing conditions will not always be covered, but if they are, your premiums will likely be higher. Being upfront about your medical history (and that of family members) is crucial. If you hide anything from your insurance company and later file a claim, your insurance company may refuse to pay.
How do I buy critical illness coverage?
Critical illness coverage can be purchased as a separate policy. But it is most commonly sold along with life insurance. This is usually the most cost-effective option.
As such, you will usually be able to choose from three different options for life insurance coverage:
- Range coverage level Where the coverage amount remains the same for the duration of the policy
- Increase range coverage As the amount of coverage increases in line with the rising cost of living
- Diminishing range coverage – Where the amount of coverage decreases in line with the debts owed on the mortgage payment.
Are there alternatives?
If you are still weighing whether critical illness coverage is right for you, the following insurance policies can be considered as an alternative:
Income Protection Insurance If you are unable to work due to illness or injury, income protection insurance will pay regular income to help cover your monthly expenses. The downside is that there is usually a “delay period” before you can receive your payments – usually anywhere between a few weeks and several months. However, the payments must continue until you can return to work, retire or your policy expires.
family income allowance – This pays a tax-free monthly income to your loved ones in the event of your death. Its goal is to make up for lost income if the breadwinner no longer exists. You can decide how much income you want your family to have and for any length of time. It can be a cheaper option compared to other forms of life insurance, and getting a monthly income instead of a lump sum may be easier for your family.