Understanding Critical Illness Cover

Having a critical illness is not something we really give much thought to, instead we choose to think it will happen to someone else before it happens to us! But in the UK somebody is diagnosed with cancer every 2 minutes and someone is admitted to hospital with a heart attack every 5 minutes.

Critical Illness insurance – What is it?

Critical illness insurance provides you with a lump sum payment if you are diagnosed with a specific illness or disability.

The tax-free, one-off payment can provide valuable financial support and could help pay for treatment, household bills or adaptions to your home. It is designed to provide financial support for you and your family whilst you deal with your diagnosis and allows you to focus on your recovery.

What is covered?

The conditions and illnesses covered can vary significantly between different insurers, with the most comprehensive policies covering 50 different conditions or more. In the main, there are a number of conditions that are fairly standard across all providers.

Examples of critical illnesses that are covered by the majority of insurance providers include:

  • Stroke
  • heart attack
  • certain types and stages of cancer
  • major organ transplant
  • Parkinson’s disease
  • Alzheimer’s disease
  • multiple sclerosis
  • traumatic head injury
  • Permanent disability as a result of an injury/illness.

Do you really need Critical Illness insurance?

If you are diagnosed with a critical illness your life may never be the same again. Apart from the emotional strain on you and your family, you may have to deal with the financial strain as well.

Many assume that their employer will continue to provide some level of income, or that they are able to rely on State benefits. However, employees usually move onto Statutory Sick Pay within six months and State benefits may not be adequate to replace your income.

You may want to consider Critical Illness Cover if:

  • You rely heavily on your salary to support yourself and your family
  • You do not have enough savings to live on if you were to become seriously ill or disabled
  • Your job will not cover you for an extended period off work due to sickness.

How much does it cost?

The cost of cover will depend on your age, sex, health, job, hobbies and lifestyle, the amount of cover required and how long the policy is to last.

Below is an example of the cost of a Critical Illness Insurance policy that provides £100,000 of cover to the age of 65.

Current AgeMonthly premium
30£26 pm
40£40 pm
50£65 pm

Critical illness policies cover a wide range of illnesses, conditions and situations, which means that premiums can vary widely. It is important to compare what level of cover each insurer offers for their premium.

How much cover do you need?

The amount of cover you need will depend on a variety of factors:

  • What costs will you need to cover if you were to fall ill and unable to work;
  • If you have children, you may want to ensure that your family is provided for, in case you are unable to work due to health problems.
  • If you have a mortgage, you may like for this to be repaid.

As a guide, estimate the amount of cover that would provide a lump sum to allow you and your family to continue your current lifestyle. If this proves too expensive you can always reduce the level of cover so that it is affordable – some level of cover is better than none.

Other options to consider

Although it is possible to have Critical Illness Cover as a standalone policy, for additional protection, critical illness cover can be taken out at the same time as life insurance. This provides protection against different circumstances and allows you to choose how much cover you would like for each event.

Life insurance will pay a lump sum in the event of your death during the term of the policy. Life insurance and critical illness cover policies only pay the sum assured once, on a valid claim, and will then end. They have no cash value at any time, and cover will cease if your premiums stop.

It is important to consider the different types of illness insurances and assess which is most suitable. For example, Income Protection insurance will pay a regular income in the event of sickness or accident that stops you from working. However, as Income Protection usually covers a greater range of illnesses and conditions than critical illness, and can cover you for longer periods of time not working, it is generally more expensive than Critical Illness insurance.

Disclaimer: The information included within this article is for general information only and is not intended to address the particular requirements of an individual.  In particular, the information contained within the article does not constitute any form of advice or recommendation by MWM.   The information should not be relied upon by individuals in either making or refraining from making any financial planning decisions.   Where necessary, individuals should seek appropriate professional advice before acting on any of the information contained in this article.

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