How to find the best critical illness cover

·5-min read

Critical illness insurance could make a huge difference to your quality of life if you were to be struck down with a serious ailment, especially if it meant you were no longer able to earn a living or look after your home and family.

This form of cover sits well alongside life insurance. With both sorts of policy, the pay-out can be used to clear debts and cover living expenses, either of the policyholder or of his or her dependents. In fact, if you go shopping for life insurance, you may find your policy automatically includes critical illness protection, or can be built in for an extra premium.

Unpleasant truths

But like life insurance, critical illness cover requires us to confront an unpleasant reality - in this case, the very real risk of contracting a major medical problem that is nothing short of life-changing.

But the very fact that critical illnesses such as cancer, heart problems and respiratory diseases strike down so many people is a compelling reason to investigate this sort of policy. And if you think life insurance is a no-brainer for anyone with dependents, the same argument applies to critical illness cover.

In fact, according to Pacific Life Re, a man aged 40 who is a non-smoker has a 3% chance of dying before he is 65 - but a 14% chance of getting a critical illness. And as medical practice improves, we’re increasingly surviving previously fatal conditions, even if it means we are off work for extended periods.

Here’s a quick rundown of how this type of insurance works:

  • critical illness insurance pays out a tax-free lump sum if you’re diagnosed with a condition listed on the policy

  • the money can be used for any purpose, such as private medical treatment, meeting household expenses, making alterations to your home or even paying for a holiday

  • policies last from between two and 50 years

  • you can buy cover for an individual or jointly for a couple - a joint policy is usually arranged to pay out the first time one of the couple contracts a critical illness

  • some policies automatically provide cover for any children you may have, although the pay-outs may be less than for the adults on the policy

  • premiums stay the same throughout the duration of the policy, but prices when you buy increase as you get older

  • once you’ve received a payout, a critical illness policy comes to an end. You can only claim once

  • if you have added critical illness cover to a life insurance policy, you can claim on both if necessary, although death within a short time of an illness being diagnosed may mean only the life insurance pay-out is made.

What are ‘critical’ illnesses?

Each critical illness policy has its own definitions and details of the cover provided, so check carefully. The most comprehensive policies will cover conditions such as:

  • cancer

  • stroke

  • heart attack

  • Parkinson’s disease

  • Alzheimer’s disease

  • multiple sclerosis

  • traumatic head injuries

  • kidney failure

  • organ transplants.

Your policy might also cover you if you are severely disabled by an injury or illness.

Is there anything to watch out for?

Not all policies cover all types of cancer, particularly some early-stage cancers.

Covid-19 is excluded from critical illness cover as most people recover quickly. That said, you may qualify for a pay-out if you are in intensive care as part of your treatment.

If you are deemed to be at particularly high risk of a particular illness - you might, for example, have a family history of heart disease or a particular cancer - you will face a higher premium, or you might be offered a policy which does not cover that illness.

In addition to critical illness insurance, there is a form of cover known as terminal illness insurance. This pays out if medical professionals diagnose you with a condition with a life expectancy of less than 12 months. Critical illness policies usually do not pay out on diagnosis of a terminal illness, but terminal illness cover is often included at no extra cost on life insurance policies.

Why do I need critical illness cover?

If critical illness strikes and you are forced off work for a lengthy period, or even permanently, you will quickly feel the impact on your household finances.

If you are not earning, having a critical illness would still have a financial impact, as you might need to pay for more help at home, on top of facing additional living costs.

Your options, outside of having critical illness insurance, would be to use savings, borrow or even sell possessions to raise cash - none of which would be an attractive or realistic long-term option.

Your employer might or might not be generous in terms of providing sick pay. But eventually - often within six months - employers are moved onto Statutory Sick Pay (SSP). At present, this is worth less than £100 a week.

If you’re self-employed, of course, you’ll only get the sick pay you pay yourself. And you wouldn’t qualify for SSP.

What affects the cost of cover?

The cost of critical illness cover depends on a range of factors including:

  • the amount of cover - the higher the potential pay-out, the more you’ll pay.

  • age - as you get older, the risk of contracting a critical illness increases

  • lifestyle - smoking and alcohol consumption can increase the cost of cover.

  • health and medical history - you’ll pay more if you a deemed unhealthy or in a high risk category

  • occupation - some jobs are risky because of the potential for accidents.

As an example, a healthy 40-year old non-smoker might expect to pay £25 - £30 a month for £50,000 of cover, and £50 - £55 a month for £100,000 of cover.

The older you are, the more expensive cover becomes because of the higher risk of falling critically ill. The same 40-year old wanting £75,000 or cover might pay around £40 a month, but they would be facing premiums of £80 or more if they took out the policy 10 years later.

Critical illness insurance is more expensive than life insurance because, as noted earlier, you’re around four times more likely to fall critically ill than you are to die before you reach 65.

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