What is critical illness cover?
A life insurance policy which has a critical illness element works just like normal cover 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 tax-free lump sum in the event you are diagnosed with one of the illnesses covered by your policy.
It is possible to take out critical illness cover both as a separate standalone product or as part of a life insurance policy.
When critical illness is included as part of your life insurance plan, you will pay one premium. This monthly premium is generally much cheaper than paying for 2 separate policies, however, it will normally only pay out once.
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. You may decide to take out a separate critical illness policy, for extra protection, if you already have life cover that you have been paying into and do not want to cancel/lose.
Common uses for a critical illness pay out include, to:
- Replace your income if you are unable to work
- Pay for expensive medical treatment
- Pay off your mortgage balance
- Fund required adaptations to your home
- Pay off debts (loans, credit card, car finance)
- Pay for a carer, if your family need help, to cope with the demands of your illness.
Critical illness protection expires after the full sum is paid out, 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.
Do not confuse critical and terminal illness cover – the latter pays out if you are diagnosed with a terminal illness and are predicted to die within 12 months. Often terminal illness cover is included as standard on a life insurance policy.
Why might you need critical illness cover?
As with all life insurance, it is a case of weighing up your individual circumstances and making a choice. Even if you have no financial commitments and no dependents, the added protection of critical illness may cover your lost income and help maintain your lifestyle if you are unable to work.
If you have a wife and children who rely on your income, you are even more likely to want the reassurance that your loved ones would be comprehensively 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 the monthly mortgage repayments or rent?
- Could you afford ongoing household expenses (utility bills, council tax, home maintenance)?
- Could you meet ongoing living expenses (food, drink, clothing, petrol)?
- If you needed house adaptations because of your condition, could you afford them?
- Could you afford the ongoing costs of raising the children (clothing, food, nursery fees, university fees)?
Having critical illness cover can also reassure you, 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.
Before finalising how much cover you need, it is a good idea to establish how much sick pay you would be entitled to from your employer. There may also be some state benefits you are entitled to, although it’s important not to rely on these.
Which critical illnesses are covered?
Illnesses which are considered ‘critical’ can vary from one insurer to the next, so it is important you check exactly what is covered under your particular policy and the severity of the condition required for it to pay out.
However, most critical illness policies will cover certain illnesses/conditions, such as:
- Heart attack
- Parkinson’s disease
- Multiple sclerosis
- Major organ transplant
- Total deafness
- Total blindness
- Alzheimer’s disease
- Loss of limbs
- Permanent disability
- Certain types and stages of cancer.
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 and major 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’re at greater risk for a wide range of serious illnesses, including a stroke, heart attack, emphysema and heart disease. All of which are highly likely to impact on 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).
Cost of critical illness
Your monthly premium will be set based on your current health, age, lifestyle and the amount of protection you require.
As a general rule:
- Life insurance with critical illness is more expensive compared to standard life cover
– Insurers have to pay out if you become critically ill or if you die, so their risk is increased
- Life insurance with critical illness is, however, cheaper than 2 standalone policies
- Critical illness premiums depend largely on the likelihood of a claim
– If you are older and in poor health, your premiums will be higher because you are statistically more likely to claim
- The more illnesses covered by your policy, the higher your premiums
- The larger the sum insured/pay out, the higher your premiums
- Being a smoker will increase the cost of your premiums.
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.
Visit Money Advice Service budget calculator, to help you establish how much cover you require to protect your loved ones.
Guaranteed or reviewable premiums?
You have the option of taking out either a guaranteed or reviewable premium.
Reviewable premiums tend to start out cheaper. However, they are reviewed at regular intervals and your insurer may increase the cost during the term.
In contrast, guaranteed premiums are generally more expensive initially. However, remain fixed for the duration of the policy and the monthly cost is guaranteed not to increase once the policy has started.
Your medical history
You will be required to give some details about your medical history in order to get 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, you may not be covered for certain pre-existing health conditions you had prior to taking out the policy. As with any life 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 dependents, (should you become critically ill)
- A tax-free lump sum is normally paid within 30 days of diagnosis
- Lump sum pay outs could help pay for expensive 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
- Many 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 (for example, stress or a bad back)
- Specified severity of certain conditions needs to be obtained for a pay out (for example, not all cancers are covered)
- May require a medical exam
- Insurer may implement a 14 to 30-day waiting period after diagnosis, (before pay out is made).
Why use Reassured to secure the best critical illness cover?
- Life insurance and critical illness is what we do, (it is all we do)
- We will scan the market for you, finding the most competitive quotes available
- 13,500+ 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.
Talk to our Reassured consultants today on 0808 168 2025 about securing a life insurance policy with critical illness cover, or a separate critical illness policy. Alternatively Start Your Quote online – it only takes 2 minutes.