Critical Illness Cover

Protection when illness strikes

What is Critical Illness Insurance and What Does It Cover?

Critical Illness Cover is an insurance policy that will pay out a cash lump sum if you suffer from one of the serious illnesses listed under the policy.

The three most common critical illness claims are for some forms of:

  • Cancer
  • Heart attacks
  • Strokes

As well as the above ‘big three’ conditions, Critical Illness Insurance covers typically anywhere between around 10 to more than 100 serious or critical illnesses. This will depend on your insurer.

Other common conditions covered include:

  • Multiple Sclerosis
  • Permanent loss of vision / hearing
  • Loss of limbs
  • Motor Neurone Disease
  • Organ failure / transplant

Each insurer has their own definitions of these illnesses, which effectively sets a ‘threshold’ for how serious that illness has to be before you can make a successful claim.

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Do I Need Critical Illness Cover?

If you develop a critical illness, this insurance policy is designed to pay out a lump sum.

You can use it to repay a mortgage, keep up with the bills or adapt your home to suit a new disability – however you use it, the cash can prove a hugely valuable lifeline.

Unfortunately, no one can ever be sure what life has in store for them. A serious illness could strike at any time. Statistics show the risk of many critical illnesses is rising in the UK, even among younger people of working age.

Major Illnesses: The Statistics

  • Worldwide there will be 28 million new cases of cancer each year by 2040. UK incidence is ranked higher than three-quarters of Europe. (Cancer Research UK)
  • It is estimated that around 1.4 million people alive in the UK today have survived a heart attack (BHF UK CVD Factsheet).
  • Of the 900,000 people who currently have dementia in the UK, more than 70,800 are under 65 (Alzheimer’s Society).
  • There are 340,000 people registered as blind in the UK (Royal National Institute of the Blind).
  • The Multiple Sclerosis Society estimate that around 130,000 people are living with MS in the UK, with 7000 new cases diagnosed each year (Multiple Sclerosis Society).

Not every incidence of one of these illnesses will be covered by Critical Illness Cover. Less severe forms of conditions such as cancer or heart attack may not be included in the wording of your policy, so it’s important to check definitions carefully.

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How Does Critical Illness Cover Work?

  • You take out a policy, choosing how much cover you need and the length of the policy.
  • You suffer from a critical illness as defined by the policy wording during the term of your cover.
  • You make a claim, submitting any supporting medical evidence the insurer requires.
  • Once the claim is accepted, the insurer pays out. If your illness is severe enough to receive the full sum assured, the policy terminates.
  • The cash can be used for a range of needs, such as meeting financial obligations or modifying a home to accommodate a new disability.

How Much Critical Illness Insurance Do I Need?

The amount of cover you choose doesn’t need will really depend on your personal circumstances and your budget.

However, here are some broad considerations you may wish to take into account when working out how much insurance you need:

  • How much is outstanding on your mortgage
  • Any other outstanding debts
  • Daily living expenses for you and your family
  • Medical / nursing / care home fees
  • Private medical treatment – both the cost of treatment itself and, if necessary, funds to travel abroad to have it.

You’ll also have to consider Critical Illness Cover underwriting limits when you’re insuring yourself.

These are thresholds which, once you cross, the insurer will require further medical evidence such as a GP Report, bloods or a full medical before your policy can be accepted.

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How Much Does Critical Illness Insurance Cost?

The cost of Critical Illness Cover will depend on a number of factors, including:

  • Your age
    The older we are, the higher the risk of us suffering from a critical illness
  • Your state of health
    Your current state of health, including your height and weight and whether you’re a smoker, will all be considered when working out the cost of Critical Illness Insurance
  • Medical history
    As well as your current state of health, insurers will look back into your medical history to see if you’ve suffered a from an illness in the past. If so, the insurer may choose to load the baseline premium to reflect your higher degree of risk or decline to insure certain conditions on the policy.

Your Policy Options

There are a number of options for you to consider to make sure the policy works for you and your needs.

Decreasing or level cover?

  • Level Term
    The benefit stays fixed over time, so the policy will pay out the same amount in the first year as in the last
  • Decreasing Term
    The benefit falls over time, reaching zero by the end of the policy, therefore making this cover the cheaper of the two.

Level term critical illness cover is often used where the policy is to cover an interest-only mortgage, where the capital value of the loan doesn’t diminish over time.

Also, level policies are used to ensure you and your loved ones will always receive the full benefit from the policy, no matter when you develop the critical illness.

Decreasing critical illness insurance is often used to cover a straightforward repayment mortgage, where the mortgage balance falls over time.

As the benefit falls over time even as you age and the risk of you claiming increases, decreasing cover is cheaper than level cover.

Guaranteed or reviewable premiums?

  • Guaranteed premiums will remain fixed for the life of the policy, unless you’ve opted to index-link the cover so that it keeps pace with inflation.
  • With reviewable premiums, the insurer has the discretion to increase the amount you pay for Critical Illness Cover on a regular basis. This could see significant increases in premiums on an annual basis.

Single or joint cover?

Just as you can take out Joint Life Insurance, you can take out Joint Critical Illness Cover. This will cover two people for the risk of serious illnesses under one policy.

It’s usually slightly cheaper than buying two separate individual policies but may not always be the best option in the long run.

Just as with life cover, the policy will only pay out once on the first instance of critical illness, potentially leaving the healthy partner without any cover.

If budget is available it can worth considering taking out two individual policies while you are both young, fit and healthy.

Number of critical illnesses covered

Always check not only the number of critical illnesses covered – the average is around 40 but this can be as few as 10 or extend to over 120 – but also the definitions surrounding those illnesses.

Look for clear, robust definitions of the serious illnesses covered by your insurance plan to enhance your likelihood of being able to claim.

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