What is Critical Illness Cover?

Critical illness cover is a type of health insurance policy that could pay out a lump sum if you are diagnosed with a life threatening illness.

The number and variety of conditions covered differs widely from insurer to insurer, but there are seven core conditions that tend to be covered by all critical illness policies:

  • Cancer

  • Coronary artery bypass

  • Heart attack

  • Kidney failure

  • Major organ transplant

  • Multiple sclerosis

  • Stroke

Permanent disability caused by illness or injury is also usually covered by most policies.

How does it work?

If you are diagnosed with one of these conditions, you can receive a payout from your insurer which could amount to several hundreds of thousands of pounds.

Critical illness cover differs from income protection insurance because you will not receive a regular pay out to replace any loss of income.

Instead you will usually get a one off tax free payment which could be used to help with things like your living costs and mortgage repayments, or used to pay towards paying for treatment or care.

Who is it suitable for?

Critical illness cover might be sold alongside financial products like mortgages, but you do not legally need to buy a policy.

However, it can provide peace of mind that you will receive some financial help should you ever fall seriously ill, giving you one less thing to worry about.

Critical illness cover could be right for you if:

  • You do not have enough savings to cover your outgoings if you become seriously ill or disabled and can no longer work.

  • Your employer does not offer any benefit packages that cover a period of long term sickness.

  • State benefits are not enough to replace your income. You may be able to claim around 100 a week, depending on your circumstances.

  • You are a single person with no dependants because it will pay out a lump sum if you become ill rather than paying out to those who rely on your income to survive.

Look out for exclusions

Critical illness cover often comes with lots of exclusions and very specific conditions under which you can make a claim, for example:

  • Though heart attacks, cancer and strokes are covered by nearly all critical illness policies, some minor heart attacks or early stages of cancer will not be covered.

  • Some policies will not cover illnesses brought about by pre-existing medical conditions, so you must provide your insurer with as much detail as possible about any medical conditions you have or have had upon taking out a policy.

If you are found to have omitted any detail regarding your health, this could invalidate your cover when you need to make a claim.

When it comes to taking out insurance, it is always better to disclose all than leave things out. Although you might be given a higher premium, it is worth paying more to know you will be covered if the time comes to make a claim.

What should you look for in a critical illness policy?

You should not just to go for the cheapest plan, as this may not provide you with the cover you need.

It is important to find a policy that you can afford, as long as you balance this with cover that will be useful to you in the event of illness.

For example, if you are on a limited budget you may not need expensive comprehensive cover, and a basic policy may give you the cover and reassurance you need.

You should shop around before you decide on a policy, so that you can compare the benefits, costs, allowances, and restrictions of several different policies until you find one that suits you.

Remember to always look beyond the policy summary and find out what the policy will really cover in the event you need to make a claim, for example:

  • Are the premiums are fixed: Fixed premiums mean the amount you pay to keep up the cost of cover will stay the same throughout the life of your policy, so you can budget accordingly and not face premium rises. Not all policies have fixed premiums and are likely to rise at some point.

  • Are children covered: Many policies now offer cover for children, meaning that should your children fall critically ill they will be covered under your policy, and you will receive a lump sum payout.

How much does critical illness cover cost?

This will vary from insurer to insurer, and according to what kind of cover you require. It will also depend on how 'high risk' a customer you appear to be.

This means how likely your insurer sees you as becoming critically ill during the policy term. So you may pay higher premiums if you have:

  • Any pre-existing medical conditions

  • A history of illness

  • Members of your family who suffer from any serious illnesses

Also if you are a smoker you can expect to pay more in premiums than non-smokers, as so many health risks are associated with smoking.

The waiting period

The cost of premiums may also be affected by your selected waiting period.

This is the period of time, usually around 3 months, after taking out a policy during which you cannot make a claim.

After that point you will usually have to wait for around 30 days before your receive your payout, though if you want this wait period to be shorter you will pay more in premiums.

If your illness is a permanent disability rather than a debilitating illness that severely shortens your life expectancy, you may have to wait 6 months to a year after making a claim for your insurer to settle it.

What else should you consider?

When you buy a policy you will have to fill out a detailed form specifying your medical history, plus any medical conditions in your family.

If in doubt about which conditions to include, it is better to include all of them because one condition may make you more likely to suffer from another condition later in life.

Some insurers, although not all, will also require you to undergo a medical examination before being offered a quote for cover.

Finally, when you have taken out your policy there will usually be a cooling off period of around 30 days, during which time you may cancel your policy and get a full refund if you change your mind.