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Critical illness cover

Critical illness cover

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Last updated: 25 May 2021

Critical illness cover, or critical illness insurance, is a policy that protects against the loss of income that could result from being diagnosed with a serious illness. It is slightly different to a life insurance policy; read on to find out if taking out a critical illness policy is right for you.

What is critical illness cover?

Critical illness cover is a type of insurance policy that protects you and your family should your health negatively impact your financial situation. 

If you and your family would struggle to pay your mortgage, rent, utility bills, and/or any debts if you were to become seriously ill, then critical illness cover is something you should consider. 

The policy will outline specific illnesses and medical conditions that it applies to, such as strokes, heart attacks, different types and stages of cancer, and diseases such as multiple sclerosis. 

If you are diagnosed with any of these you will be paid a tax-free lump sum in order to maintain your financial situation.

Many people confuse critical illness cover with life insurance

The key difference between the two is that a critical illness policy is paid out in the event that you are diagnosed with a particular illness or medical condition during the duration of the policy, whereas a life insurance policy is paid out if you die while the policy is in effect. 

Despite the difference, many life insurance policies have the option to add critical illness cover as an extra. 

Comparing different critical illness insurance policies, in conjunction with life insurance or not, is essential to finding the right policy for you.

What are the benefits of critical illness cover?

Critical illness cover will pay out a single lump-sum if you are diagnosed with a serious illness, usually one with permanent symptoms, upon which the policy will end. 

This payment is tax-free, allowing you to claim the full value of your policy. 
There are no hidden fees, making critical illness cover very clear and straightforward in terms of your financial payout.

By taking the form of a single lump-sum, critical illness cover enables you and your family to spend the money in whatever way you see fit, with no restrictions. 

This makes the payout flexible to your needs, offering a comprehensive financial lifeline in a time of need. 

You could use your payout to ensure you keep up with payments on your rent or mortgage - similar to mortgage life insurance - or any other monthly outgoings you might have, much like an income protection plan of sorts. 

Alternatively, you could clear any debts you might have or pay for medical bills or any home renovations that may be necessary due to your medical condition. 

If you are concerned with providing for your family, you could invest your payment in order to generate a steady income.

Many insurers also offer critical illness cover for your children alongside your own policy, at no extra charge. The payout for critical illness cover for a child is usually limited to between £10,000 and £25,000 though.

What are the conditions of critical illness cover?

Critical illness insurance comes with various conditions, so it is important to compare different deals and read the fine print of each policy so that you know exactly what you are paying for.

Illnesses covered by critical illness insurance

An important part of any critical illness policy is the list of illnesses and medical conditions that it covers. 

This varies from insurer to insurer, but it can often include up to sixty diagnoses and injuries, and sometimes cover will be limited to a specified severity.

Some policies will give a small payout for less serious conditions, and then the full amount will be paid if your condition worsens to critical status or if you are diagnosed with a critical illness at a later stage. 

If your condition is deemed terminal, often insurers will have a higher terminal illness cover level payout.

Critical insurance cover is never all-inclusive. For instance, some types of cancer will not be included because they are easily treatable, and so are not deemed critical enough to be covered by the policy. 

Alternatively, you may have to wait for cancer to reach a certain stage before you can claim your critical illness cover payout. Similarly, although strokes and heart attacks are typically covered by critical illness insurance, a mild stroke or mild heart attack may not be severe enough to elicit a payout. 

Payouts are limited to particularly serious illnesses, or those with permanent, life-altering symptoms. 

Make sure you are happy with these conditions before signing up to any critical illness cover.

Premium payments

Critical illness cover requires you to pay premiums to keep the policy going. 

Therefore, you need to be sure you can afford to pay these premiums before you take out a policy. 

Premiums are not refundable - in other words, you will not get your money back if you do not claim a payout within the term of the policy, or if you stop the policy part-way through. 

You should carefully consider whether you would benefit from critical illness cover before taking out a policy, as you cannot ask for your money back after you have agreed to the financial commitments.

The cost of your premiums will depend on how likely you are to make a claim. 
The older and generally less healthy you are, the more at risk you are of being diagnosed with a serious illness or medical condition, and so premiums will be more costly. 

However, you can bring down the cost of your cover by making healthy lifestyle changes, for example by quitting smoking or losing weight.

Be aware that companies with low premiums may be cheaper because they limit the illnesses and medical conditions covered in their policy more than other insurers, leading them to turn down a high number of claims. 

You can check the success rates of claims for particular insurers yourself by looking at the claims data of different companies, which they have to publish.

Why purchase critical illness cover and life insurance together?

Many insurers offer critical illness cover in conjunction with life insurance in deals that could save you money compared to taking out two separate policies. 

However, it is important to note that policies that combine a critical illness insurance policy and life insurance are limited to a payout of a single lump-sum. 

Therefore, if you claim for a serious illness or medical condition, you will not receive a further payout in the event of death. 

There are advantages and disadvantages to purchasing critical illness cover and life insurance together, so it is important that you consider the right choice for you personally.

Can I get critical illness cover if I have a pre-exisiting medical condition?

It will be more difficult to take out critical illness cover if you have a pre-existing condition. This is largely because you will be deemed a high-risk of becoming ill and making a critical illness claim by your insurer.

This all depends on the pre-existing condition and its severity, but you may be able to take out an exception for the pre-existing condition when taking out your new policy.

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Fergus Cole

Author: Fergus Cole

Fergus is a journalist specialising in the personal finance, energy and broadband sectors. He also has a passion for travel and adventure so tries to make the most of this in any spare time he gets.