Guide: Critical illness cover

December 11th, 2019

Critical illness gives a pay-out when the claimant is diagnosed with a specified illness.

What exactly is critical illness cover?

Critical illness cover is typically an add-on to a life insurance policy with the main difference bieng that it pays out from the moment you are ill as appose to from the moment you pass away, which is a big benefit. For example, presume you are a stay at home parent, if you fall critically ill then you might be required to start paying for child care costs and this is when critical illness cover acts as a financial lifeline. The pay-out made by the critical illness cover is a lump-sum amount which is exempt from any form of tax so you can use utilise the full amount at your discretion.

Why should I get critical illness cover?

In many cases, people who get critical illness cover don’t have a huge amount of savings and hence the cover is more valuable, such that the lump sum amount can be used to pay off the mortgage, household bills or even private medical/specialist costs. To add, even if you don’t have dependents, the cover will ensure that you can still pay for the essentials – ultimately, you don’t want to worry about being behind your mortgage/rent payments whilst you are unwell or even adapting to an injury.

What is exactly covered?

Like most types of insurance cover, it is important to read all the details so that you fully understand what you have purchased.

With regards to critical illness cover, the list can be very long especially as some insurer’s cover more than 60 different injuries. However, it is important to note, that in many cases the illness needs to be critical or permanent before the pay-out will be triggered. For the case of cancer, treatable cancers will also not be on the list or it will need to be at a certain stage before the payout will be considered.

However, some insurance companies do make a small payout if the diagnosed condition is less severe. The policy will also continue, allowing you to make another claim over the same term.

Ultimately, it is of paramount importance to read the small print and understand the exclusions and inclusions of your policy.

What factors should be considered before purchasing critical illness cover?

Whilst price is the factor a lot of people look at, when it comes to life insurance it is important to read the small print and make sure that the cover is comprehensive – you don’t want to have a policy which only covers for the unusual illnesses as you are less likely get those conditions.

The Association of British Insurers (ABI) is the insurance industry trade body and they have the ABI+ definitions which include the standard illnesses of a critical illness cover. So if your critical illness policy has the ABI+ definitions then you should be able to make a claim more easily as the ABI+ definitions are more varied then the industry standard.

In some cases, your policy may not already include permanent and total disability cover, in such instances it can be bought at a higher premium. Permanent and total disability cover basically allows for the policy to pay-out if you are rendered permanently disabled. The compensation happens even if the condition is not listed in the terms of the cover.

Moreover, now days, many insurers also provide critical illness cover for children at no extra cost, however this cover will be limited to around £10,000 and £25,000. To add, other critical illness cover also include low grade prostate cancer cover, accidental hospitalisation benefit or even mastectomy cover- which gives a small pay-out whilst keeping the policy intact and unaffected.

Terminal illness is different from critical illness

Most life insurance companies already include terminal illness cover as a standard term, meaning it pays-out if the doctor has confirmed the diagnoses and you are likely to pass away in the next 12 months.

Critical illness cover pays-out for serious illness from which you might recover. According to the ABI, a claim on critical illness cover is 5 times more likely before the age of 65 then terminal illness, hence critical illness cover is in fact more expensive then a life insurance policy. Depending on your personal circumstance, paying more for critical illness cover could be well worth it, especially if you consider how your dependants would cope without your income.

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