What is Critical Illness Cover?
Critical Illness Cover is a type of health insurance that pays out a tax-free lump sum if you are diagnosed with an illness that is deemed to be life-threatening under the terms of your policy.
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. These are cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. Permanent disability caused by illness or injury is also usually covered by most policies.
This means that if you have critical illness cover in place and are diagnosed with one of these conditions, you will receive a payout from your insurer, usually amounting to several hundreds of thousands of pounds, to spend as you wish during what is likely to be a difficult time.
Critical illness cover differs from Income Protection Insurance and other forms of insurance that protect your income, as 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 living costs, mortgage repayments and so on - but could equally go towards paying for treatment or care that might be needed.
Who is it suitable for?
Critical Illness Cover is by no means an essential type of insurance and there will be no obligation to buy it at any point in your life, though you might be sold it alongside products that represent a significant financial commitment, such as your mortgage.
However, although not essential it can provide real peace of mind that you will receive some welcome help should you ever fall seriously ill, giving you one less thing to worry about. Financial responsibilities are likely to be the last thing on your mind if you do become unwell, so having this kind of cover in place can provide valuable reassurance that you'll be able to cope.
That said, you do need to be careful when choosing a policy, as critical illness cover is notorious for coming 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. Checking the small print of any policy is therefore vital, as you may find upon making a claim that your insurer is not prepared to pay out due to a very specific exclusion.
Some critical illness policies will not cover illnesses brought about by pre-existing medical conditions, so this is important to look into too. It is also crucial to provide your insurer with as much detail as possible about any medical conditions you have or have had upon taking out a policy, as if you are found to have omitted any detail regarding your health, this could invalidate your cover when you need to make a claim. This includes any conditions that members of your family have or have had in the past, because these could possibly have an influence on your own health too.
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's worth paying more to know you will be covered if the time comes to make a claim.
If you are a single person with no dependants, critical illness cover could be more valuable to you than life insurance, 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. It would be worth considering how your family would cope if you became ill and were unable to work, and whether or not they would have the means to care for you.
What should I look for in a critical illness policy?
It's advisable not just to go for the cheapest plan, as this may not provide you with the cover you need. That said it is important to find a policy that suits your means, as long as you balance this with cover that will be useful to you in the event of illness. Likewise if you're on a limited budget it's not always necessary to go for a policy that covers every condition under the sun, as these may well cost more and a more basic policy may be adequate to give you the cover and reassurance you need.
As with all financial products it's a good idea to 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.
The sorts of exclusions that are associated with critical illness cover are largely due to new agreements made by the ABI (Association of British Insurers) in 2003, which saw a tightening of the restrictions on many critical illness insurance policies. This means that less severe cases of an illness are now less likely to be covered. Such exclusions may increase in the coming years as medical technology advances, and premiums may rise as a result, so if you are considering getting critical illness cover it may be better to do so sooner rather than later.
It's worthwhile checking the small print of your critical illness policy to see if your premiums are fixed. Fixed premiums means that the amount you pay to keep up the cost of cover will stay the same throughout the life of your policy. This means that you can budget accordingly and won't face premium rises. Unfortunately many critical illness policies do not have fixed premiums and they are likely to rise at some point.
Many critical illness policies now offer cover for children as part of their insurance, meaning that should your children fall critically ill they will be covered under your policy, and you'll receive a lump sum payout. It may give you peace of mind to know that both you and your children will be financially covered should the worst happen.
How much does critical illness cover cost?
Naturally the cost of your critical illness cover will vary from insurer to insurer, and according to what kind of cover you require. However the cost of premiums will principally hinge 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.
Therefore if you have many pre-existing medical conditions, a history of illness, or members of your family suffer from any serious illnesses you are likely to pay more in premiums than if you have a clean bill of health. 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 cost of premiums may also be affected by your selected waiting period. Generally there will be a period of 3 months or so as standard after taking out a policy during which you can't make a claim. After that point, upon making a claim, you'll 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 I consider?
When you have decided to buy a critical illness insurance policy you'll have to fill out a detailed form specifying any medical conditions you have or have had in the past, plus any medical conditions in your family. If in doubt about which conditions to include, it's better to include all of them because one condition may, according to the insurer's statistics, make you more likely to suffer from another condition later in life.
Some insurers, although by no means 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.