What is critical illness cover?
Life insurance with critical illness cover works just like a normal policy in that it will pay out to your beneficiaries if you die during the term.
However, in addition, the critical illness element will also pay out a cash lump sum if you are diagnosed with a condition covered by your policy.
Critical illness protection expires after a pay out is issued, or when the policy term ends and there is no cash-in value.
A key benefit of critical illness cover is you can spend the pay out as you wish, at a time when you may really need access to significant funds.
It is possible to take out critical illness cover both as part of a life insurance policy or as a standalone policy.
Critical illness cover only
When critical illness is included as part of your life insurance, you pay one premium. This monthly premium is generally much cheaper than paying for 2 separate policies.
However, it will only pay out once, either when you suffer a covered illness or when you pass away, (not both).
In contrast, a standalone critical illness policy does not pay out when you die, just if you are diagnosed with an illness detailed in the policy, during the term.
If you have individual life and critical illness cover, you/your beneficiaries could benefit from 2 pay outs. However, you would need to pay 2 monthly premiums.
What does critical illness cover do?Illnesses which are considered ‘critical’ and covered by a policy can vary between insurers.
It is important you check exactly what is covered under your particular policy and the severity of the condition necessary to secure a pay out.
As a general rule, most critical illness cover will protect these conditions:
- Certain types/stages of cancer
- Heart attack
- Parkinson’s disease
- Multiple sclerosis
- Major organ transplant
- Total deafness
- Total blindness
- Alzheimer’s disease
- Loss of limbs
- Permanent disability.
Cancer (by far the most prevalent illness), heart attack, stroke and multiple sclerosis make up the vast majority of critical illness claims. 85% according to www.aviva.co.uk and 87% according to www.criticalillness.org.uk.
Generally, most illnesses which result in long-lasting changes to your lifestyle will be covered by a critical illness policy. Some insurers may even pay out a proportion of the sum insured for less severe illnesses.
Remember, if you smoke you are at greater risk from a wide range of serious illnesses, including a stroke, heart attack, emphysema and heart disease. All of which are highly likely to impact your ability to work.
“By 2020 almost half of Britons will get cancer in their lifetime – but 38% will not die from the disease” – (source: www.macmillan.org.uk).
Do not confuse critical and terminal illness cover, the latter pays out if you are diagnosed with an illness and are predicted to die within 12 months. Often terminal illness cover is included as standard on a life insurance policy.
Common uses for a critical illness pay outFrom our experience here at Reassured, many people take out critical illness cover in order to:
- Replace an income if you are unable to work
- Pay for expensive medical treatment
- Pay off your mortgage debt
- Fund required adaptations to your home
- Pay off personal debts (loans, credit card, car finance)
- Pay for a carer to cope with the demands of your condition.
Why might you need critical illness cover?As with all life insurance, it is a case of weighing up your individual circumstances, your budget and making a choice.
Even if you have no financial commitments or dependants, the added protection of critical illness may cover your lost income and help maintain your lifestyle if unable to work.
If you have dependants who rely on your income, you are even more likely to want the reassurance that your loved ones would be protected, if you are unable to work due to ill health.
Questions to ask yourself if you were unable to work due to illness, could you:
- Afford monthly mortgage repayments or rent?
- Pay for home adaptations (required because of your condition)?
- Meet on-going household expenses (utility bills, council tax, home maintenance)?
- Afford on-going living costs (food, drink, clothing, petrol)?
- Meet ongoing costs of raising children (clothing, food, nursery fees, university fees)?
Having critical illness cover can also reassure yourself, that should you fall ill, you could concentrate fully on your recovery and not have to worry about financial pressures.
Critical illness claims reached 15,464 in 2016, with 92.2% of claims being paid out, at an average value of £67,733.74 – (source: www.abi.org.uk).
If you want protection against critical illness, but think your family would benefit more from a regular income, as opposed to a one-off pay out, family income benefit with critical illness may better suit your needs.
You may also want to consider joint cover to help cope if your spouse/partner became critically ill.
Remember, stay-at-home parents, need protection too. Think about who would run the home and look after the children if one of you was no longer around.
How much critical illness cover do I need?If you decide that critical illness cover is a good idea, you will need to establish how much cover you need.
Much like life insurance you should consider things like:
- How much is left on your mortgage?
- What are your outstanding debts?
- The amount you and your dependants will need to live on
- Covering the children’s long-term education
- Provision for necessary private medical treatment.
You should then have a good idea on the lump sum payment required for your family to maintain their current lifestyle.
Obviously, the more critical illness cover you take out, the higher your premium. So it might be that you want critical illness but can not afford to cover all elements. Especially if you are already paying for an existing life insurance policy.
The majority of the time having some critical illness cover is better than having none at all.
Before finalising how much cover you need, it is also a good idea to establish how much sick pay you would be entitled to from your employer.
Cost of critical illness coverYour monthly premium will be determined by a number of key factors, including health, age, lifestyle, the amount of protection and the length of term you require.
However, as a general rule:
- Life insurance with critical illness is more expensive compared to standard life cover
- Life insurance with critical illness is, however, cheaper than 2 standalone policies
- Critical illness premiums depend largely on the likelihood of a claim i.e. If you are older and in poor health, your premiums will be higher
- The more illnesses covered by your policy, the higher your premium
- The larger the sum insured/pay out, the higher your premium
- Being a smoker will increase the cost of your premium.
Your critical illness cover will be priced based on the information you provide. So, although it may be tempting to hide facts about your health, it is important you are honest. Failure to disclose accurate information may affect a future claim.
With critical illness, as with standard life insurance, the best way to secure the cheapest price is to compare multiple quotes.
However, it is important to not just be lead by price. Look at the benefits of each policy option and more specifically what illnesses are covered.
Is critical illness cover worth it?Only you can answer this question and it will depend on what you have to protect and your available budget.
What critical illness cover will provide is a greater level of protection. Therefore, if you have a large mortgage and dependants, this additional coverage could prove invaluable in protecting your loved ones, should you fall ill.
It is important to realise that critical illness cover pays out upon diagnosis, even if you go on to make a full recovery.
Guaranteed or reviewable premiums?
Your medical historyYou will be required to give some details about your medical history in order to secure critical illness cover.
This is so that an insurer can determine how much of a risk you represent, and calculate an accurate premium. This may involve contacting your GP or undergoing a medical exam.
Please note, an insurer may not cover you for certain pre-existing health conditions you have previously suffered.
As with any insurance application, it is really important you are open and honest from the outset.
Critical illness cover in summary:
- Provides greater protection for you and your dependants, (should you fall critically ill)
- Pays out upon diagnosis, even if you go on to make a full recovery
- A lump sum is normally paid within 30 days of diagnosis
- Lump sum pay outs could help pay for medical treatment and/or necessary home alterations
- Provides cover against 40+ critical illnesses, (insurers cover varies, please check)
- Could replace your income, if you become too ill to work
- Guaranteed premiums ensure you know what you have to pay each month, so you can budget
- Life insurance with a critical illness element is much cheaper than 2 standalone policies
- Can be taken out as a joint policy, with your partner
- Can be included as an element of a family income benefit policy
- Is available in decreasing term, to cover your repayment mortgage balance
- Some insurers offer automatic critical illness cover for the policyholders’ children, (no extra charge).
- Generally, more expensive than standard life insurance
- If you cancel your policy, there is no cash-in value
- Cover will end if you do not keep up with monthly premiums
- You may suffer an illness that stops you from working, but which is not covered by your policy (stress or bad back)
- May require you to undertake a medical exam
- Insurer may implement a 14 to 30-day waiting period after diagnosis, (before pay out is issued).
Why use Reassured to secure the best critical illness cover?
- Life insurance and critical illness cover is what we do, (it is all we do)
- We will scan the market for you, finding the most competitive quotes available
- 16,500+ people cannot be wrong! We have an ‘Excellent‘ average Trustpilot rating of 9.6/10
- We are completely independent, impartial and do not charge you a fee
- There is no obligation
- We are a non-advised brokers. We simply listen to your personal circumstances and find you the best quotes.