What Is Critical Illness Insurance?
Critical Illness Insurance (or Critical Illness Cover) is probably the best known of the protection products and is often sold as an add-on product to a Life Insurance policy.
Critical Illness cover is a long-term insurance policy, whereby you pay a regular monthly premium to cover serious illnesses as listed in the policy. If you suffer one of these illnesses, such as cancer, a stroke or heart attack you will receive a one-off, tax-free payment.
You can use the payment to pay off the mortgage, keep paying the bills or for any care you might need. Critical Illness insurance can give you the peace of mind that should you receive a qualifying critical illness diagnosis, you would be covered financially.
How Do I Purchase Critical Illness Insurance?
There are three main ways to buy Critical Illness insurance:
- Direct from the insurer
- Via an intermediary or a broker
- With an independent financial adviser (IFA)
Buying from an intermediary such as Usay Compare, allows for you to compare a wide selection of the best companies and policies, to ensure you have the best policy to suit you.
Our intermediary service is completely free of charge and you cannot get a better price going direct to the insurers.
Who Needs Critical Illness Insurance?
Critical Illness Cover offers a safety net for anyone who doesn’t have sufficient savings or employee benefits in place to meet all your essential outgoings indefinitely – in the event of a critical illness or injury.
Life Insurance only usually pays out on the event of your death, when in reality finances could be further stretched by a critical illness; as you would have to factor your own living costs as well as any dependents, as well as potential alterations to accommodation for disability or extended periods of care.
What Does Critical Illness Insurance Cover
As with a Life Insurance policy, the pay-out sum and the term covered can be chosen by you at the outset. The amount of cover you require will depend upon your outgoings, debts and savings. The pay-out can be used to pay your mortgage, general bills, any school costs or pay off debts. Sometimes you can require a larger sum pay-out for a Critical Illness than death, as you would need to factor in your own living costs as well as your dependents. You may also want to allow for any changes to your residence to accommodate for an illness or disability and possibly to pay for any treatment.
In terms of the conditions which are covered, these are listed in your policy and do vary depending on the insurer. Usually there will be a specific list which can range from around ten to over one hundred critical illnesses. Some of the common conditions covered include:
- Stroke
- Heart Attack
- Cancer
- Multiple Sclerosis
- Permanent Disability
- Loss of Limbs
- Permanent loss of vision or hearing
How Much Does Critical Illness Cover Cost?
Critical Illness cover premiums are calculated on the same factors as Life Insurance, with two key factors determining the price:
- What level of cover you require
- Your personal circumstances which affect risk
Type of Cover Factors Which Affect the Cost of Premiums:
The Length of time you would like the cover to last.
You can choose the term you would like your Critical Illness Cover to last for
The amount of cover you wish to receive
You choose the value of the cash sum that’s paid out to you on the diagnosis of an insured critical illness. The more cover you require, the more expensive the premiums will be. The amount of cover you need will depend on the value of the expenses you wish to continue to cover as well as any additional expenses you might incur to accommodate the critical illness.
Whether you choose a level or decreasing term policy.
As with Life Insurance, it is possible to opt for a decreasing term policy with Critical Illness. A decreasing term policy is usually one of the most cost-effective solutions. As time goes on the level of cover decreases. It works well to protect a repayment mortgage; as the value of the mortgage debt decreases, so do the premiums and the level of cover. If keeping your home and not having to worry about paying off the mortgage are your main concern, this option is worth considering as the monthly premiums are less than a level policy.
Personal Circumstances Which Affect the Cost of Premiums:
Age
The younger you are when you take out a policy, the less likely you are statistically to become critically ill; so your premiums will be cheaper.
Current Health
Pre-existing medical conditions will be considered when calculating the cost of your critical illness premiums. Those with no pre-existing conditions will have cheaper premiums. Insurance companies can also take into account your height and weight to predict your health.
If you Smoke
Smoking increases your chance of developing many deadly illnesses and as a result, smokers may pay higher premiums than non-smokers.
Ways to Make It Cheaper
A Joint Policy can be a good option for some couples. As with a Joint Life Insurance policy, the policy would only pay out once, but would mean as a couple you would be protected to receive a lump sum if one of you were to be diagnosed with a critical illness that is covered.
A Combined Life Insurance and Critical Illness Policy Whilst it is possible to purchase a standalone Critical Illness Insurance policy without Life Insurance, it is usually more cost-effective and better value to purchase the two as a combination.
Do I Really Need Critical Illness Cover?
The chances of a critical illness are higher than that of death and - if you think about it - the financial implications could be worse. A critical illness diagnosis could still mean losing your salary, but you would not only have to support your dependents, but yourself as well. There could be additional costs also, for your treatment, or alterations to your property to factor in.
Each year one million workers suddenly find themselves unable to work due to serious illness or injury. (ABI Welfare Reform)
Yet according to the Department for Work and Pensions Family Resources Survey, around 54% of households have either no savings or less than £1,500 savings and 76% have less than £10,000. According to sick pay statistics in a government Health In The Workplace report: only 42% of small organisation employers offer any Occupational Sick Pay, which means the remainder would be left with Statutory Sick Pay (SSP) alone. This means employers would pay you £95.85 a week after the initial four days of illness, up to 28 weeks.
Critical Illness is not something anyone wants to think about, but sadly it is a reality for many people and a lump sum payout can be a real lifeline at such a testing time.
The reality is:
- 1 in 2 UK people will be diagnosed with cancer in their lifetime (Cancer Research UK)
- 280 per day are admitted to hospital with a heart attack (that’s one every 5 minutes). (British Heart Foundation)
- There are more than 100,000 strokes in the UK each year (one every five minutes) (British Heart Foundation)
- Around 100,000 individuals in the UK suffer from multiple sclerosis. This is a disease that attacks the young (20 – 30 years old)
Do I need Income Protection?
Income Protection cannot be packaged together with Life Insurance in the same way Critical Illness cover can. It would cost extra as a separate policy, but none-the-less it is relevant as another form of cover for illness and injury.
Income Protection is designed to cover any medical reason why you cannot do your job and provides a percentage of your wages (before tax) while you are unable to earn. This is paid in the form of a monthly income, compared to a lump sum as it is with Critical Illness.