What is critical illness cover and should I have it?

What is Critical Illness Cover?

Critical Illness Cover is an insurance policy that will provide you with a tax-free payment if you are diagnosed with one of the illnesses listed in the policy document.

Which critical illnesses are covered?

All critical illness policies cover three core conditions:

• Cancer

• Heart attack

• Stroke

Certain types of these illnesses may not be covered, or different definitions may apply, so you should check the policy information carefully.

What other critical illnesses may be covered?

Insurance companies may cover other conditions, such as:

• Alzheimer’s

• Aorta graft surgery

• Benign brain tumour

• Blindness

• Coma

• Coronary artery by-pass surgery

• Deafness

• Heart valve replacement or repair

• Kidney failure

• Loss of hand or foot

• Loss of speech

• Major organ transplant

• Motor neurone disease

• Multiple sclerosis

• Paralysis of limbs

• Parkinson’s disease

• Third degree burns

• Traumatic brain injury

• Total permanent disability

Insurers may offer cover for a wide variety of other serious illnesses that are not listed here. Before purchasing critical illness insurance, it is important to check the policy document to know exactly what conditions you are covered for.

What does critical illness insurance not cover?

Some causes of critical illness may be excluded from policies where it’s clear that the activity could directly impact an individual’s health.

The number and type of exclusions varies between insurance companies, but some examples may include:

• Alcohol and drug abuse

• Hazardous sports and pastimes

• Unreasonable failure to follow medical advice

It is important to ask insurers what exclusions are in their policies and to read through these with care.

Severity-based critical illness cover

Severity-based cover is an increasingly popular variant of traditional critical illness cover. It pays out a certain percentage based on how severe the illness is. This means you can expect lower pay-outs if the illness is less severe. The main advantages of this cover type is that more (less severe) illnesses are included and that pay-outs can be made at an earlier of an illness, assisting potentially in preventing the illness getting worse.

Why should I consider Critical Illness Cover?

Statistically, you’re much more likely to be diagnosed with a critical illness than die during your working life.

Nevertheless, the fact is that only a relatively small proportion of people take out Critical Illness Cover.

Most of us are eager to plan our future finances, and willingly take on large financial commitments, ranging from mortgages to school fees. But, when it comes to the possibility that illness might, at some point, force us out of work for a significant period – or permanently – we generally don’t want to know. Even though that risks placing all that careful financial planning in jeopardy.

Critical Illness Cover is designed to pay out a lump sum, helping policy holders with bills, or the costs of treatment, when they need it most.

I already have income protection cover. Why should I take out critical illness insurance?

Knowing that NHS or Statutory Sick Pay is capped and unlikely to meet the cost of living, many doctors use income protection insurance to help safeguard their income if they’re unable to work. But, believing that income protection cover alone will suffice, could lead to a nasty shock.

Consider the scenario when a serious injury means you can’t ever return to work. You’ll almost certainly be entitled to an ill health retirement pension, which will be topped up by your income protection payments. But, when those payments stop at your normal retirement age, your monthly income could take a significant fall.

That’s where Critical Illness Cover steps in.

Protecting your future income

By investing your critical illness lump sum until your normal retirement age, it could be used to supplement your future income when any income protection payments cease.

As well as a potential supplement for your future income, a critical illness pay-out can give you valuable options you may not otherwise have had.

Spending the money

Some illnesses, such as non-terminal cancer, may mean that you can continue to work. However, depending on your condition, you may prefer to spend time with family, loved ones and friends instead.

Rather than investing your critical illness pay-out, you could choose to spend it and take some time away from the workplace, free from any financial worries.

Reduced working

If you have suffered from a heart attack, stroke or illness which may have been caused by stress, you may not feel capable of returning to work on a full-time basis.

Choosing to reduce your hours will impact on income causing additional anxiety as it affects your standard of living. By drawing down the capital of your pay-out you could supplement a part-time working situation free from money worries.

Do I need Critical Illness Cover?

Whether you need Critical Illness Cover or not will depend on your individual situation.

Talk to a specialist

If you are unsure what is right for you, speak to Chase de Vere Medical. As specialist independent financial advisers to the medical profession, they can help you decide on the most appropriate cover for your individual situation.

Content correct at time of writing and is intended for general information only and should not be construed as advice.

This article was provided by Chase de Vere Medical