Life and Critical Illness Insurance

Life Insurance doesn't automatically include Critical Illness cover, but it can be added on to a policy. Where Life Insurance pays out a lump sum on your death, Critical Illness cover would do the same in the event of a Critical Illness for example cancer, a heart attack or a stroke.


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What Is Life Insurance?

Life Insurance provides peace of mind that if you were to pass away, your loved ones would be taken care of financially. You pay a regular premium for the policy and if you die during the term, a tax-free lump sum would be paid out to your chosen beneficiary. The value of the lump sum pay-out is chosen at the outset of the policy and you can choose the length of the term also. This means you can align the values and timeframes with your own requirements. For example you could choose a term that covers the time your children will need financial support, or a value to match the cost of your mortgage.

What Is Critical Illness Cover?

Life Insurance pays out on your death or in some cases on the diagnosis of a terminal illness (where you have been given less than a year to live). It does not cover you for a pay-out if you receive a critical illness diagnosis, which is not terminal. This is where Critical Illness Cover comes in.

Critical illness insurance is a long-term insurance policy, which covers against serious illness such as cancers, heart attacks or strokes. If you are critically ill – as per the list of illnesses in your policy terms – your policy pays out a tax-free lump sum, similar to how a life insurance policy would pay out on the occasion of your death, only this is in the event of a critical illness instead. The payment could be used to pay off the mortgage, cover healthcare costs or replace wages to maintain your family’s standard of living. Most Critical Illness policies pays out once and the cover ceases at that point. The chance of you receiving a critical illness diagnosis is higher than that of dying, so Critical Illness Insurnace is an extra cost to premium and a separate policy, but it can be put together with your Life Insurance policy.

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 dependants. 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

Do I Need Critical Illness Cover?

To answer this question, you need to know how you would continue to pay your outgoings if you were to become ill and unable to work? Only 43% of employers offer 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. After the 28 week period – when SSP ends – if you are still unable to work – assuming you have paid National Insurance for two years or more – you are eligible to claim contributory Employment and Support Allowance (ESA) which is even less than SSP.

If you cannot rely on sick pay, you would need to rely on savings. According to the Department for Work and Pensions, around 48% of households have either no savings or less than £1,500 savings, and 70% have less than £10,000. If you don’t think your savings and sick pay would cover your essential outgoings, for yourself and your dependants, Critical Illness cover could be a good option.

What Are the Chances of Suffering a Critical Illness?

The statistics show that the risk is rising for many critical illnesses in the UK. We never know what is around the corner, but here are some statistics for some major illnesses:

How Much Does Life Insurance and Critical Illness Insurance Cost?

The cost of premiums is largely dependent on the level of cover you require. Obviously if you choose a larger pay-out sum, the premiums will be higher. Equally, if you choose a longer term to be covered for, it will cost more.

Other factors affecting the premium will be:

  • your age
  • the type of work you do (some professions are higher risk)
  • your health
  • if you smoke

Everyone’s individual requirements are different, and we would always suggest speaking with one of our expert advisers to make sure you get the perfect policy to cover what’s most precious to you. Premiums and cover vary a lot, but basic policies start from a few pounds a month and most people are surprised by how reasonable they are.

What Types of Critical Illness Cover Are There?

There are a variety of options available when it comes to the type of Critical Illness Policy you choose. These can affect the cost of the premiums as well as what the policy covers you for.

Term Critical Illness is taken out for an agreed term, for example 10, 20 or 30 years, to cover the specific period of time in which it is needed. Whilst raising your children perhaps, or paying off your mortgage. It is the most affordable way to buy Critical Illness Cover, but only pays out if you receive a diagnosis during the term of the policy.

Level or Decreasing Critical Illness?

The two most common types of Term Critical Illness are Level and Decreasing Critical Illness Cover.

Level Critical Illness Cover

Remembering that Critical Illness Insurance policies last for a set number of years – Level Cover requires the same premium and provides the same lump sum throughout that term, if you receive a critical illness diagnosis any time throughout the term.

So if you chose a level of cover of £150,000 for example, and a term of 20 years, at any point during that 20 year period, you would receive the £150,000 lump sum on the diagnosis of a covered illness.

Decreasing Critical Illness Policy

A decreasing term policy 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 continuing to live in the house and not have to worry about paying off the mortgage with a Critical Illness are your main concern, this is worth considering as the monthly premiums are subsequently less than a level policy.

What Is Income Protection Cover?

Another option to protect yourself against lost income in the event of a Critical Illness, is Income Protection Insurance. This is also a long-term policy which covers lost income if you are unable to work due to illness or injury. It offers an ongoing regular income to replace a portion of your earnings and allows you to continue to pay bills and your living expenses while you return to health. If you do not recover enough to work, the best policies would continue to pay until your retirement. Unlike critical illness it is possible to claim multiple times on the same policy if you are unable to work at different times throughout the duration of the policy.



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