What is Critical Illness Cover?

A lump sum is paid out if you are unfortunate enough to suffer from any of the specified critical illnesses, usually including, but not limited to, cancer, heart attack, kidney failure, multiple sclerosis, major organ transplant and strokes.

The illnesses covered are serious and can be life threatening but do not have to be fatal for a payment to be made.

Whereas cost may be seen as the key factor when selecting an insurer to provide Life Cover, when considering which Critical Illness policy to choose, whilst cost is still an issue, so is the quality of the contract and the types of illnesses covered.

When should it be used?

The lump sum is most commonly used to repay a mortgage. However, it could be used to pay for things like nursing care, adapting your house to accommodate a disability, helping with recuperation or meeting income and expenditure needs should you be unable to work.

Main features

Term Assurance is the simplest way of purchasing Critical Illness Cover, it allows you to select the term of the plan at outset which best meets your needs.
If you are diagnosed with a qualifying critical illness within this term a payment will be made, if the diagnosis is made after the end of the term then nothing will be paid.

You can decide the level of cover that you require and also the term of the plan.

Many policies allow you to include Life Cover in the same plan.

Critical Illness Cover is available in a number of different forms:

Level Term Assurance

The amount payable stays level over the term of the plan

Renewable Term Assurance

As above, the amount stays level over the term, however the plan can be renewed at the end of the term, without having to provide further medical information

Decreasing Term Assurance

The sum assured decreases over the term of the plan generally in line with the amount owing on your capital repayment mortgage

Family Income Benefit

The benefit is payable as an income rather than a lump sum

The sum assured is paid should you contract an illness which is covered by the insurer and you meet their definition.

Each insurer covers a different range of illnesses, although all insurers cover ‘core’ illnesses such as cancer, heart attack, brain tumour etc. It is important to check which illnesses are covered and also the definitions used by the insurer to ensure that you are covered for the illnesses that are most important to you.

Premiums are based on the level of cover, the term of the plan, your gender, your age, your current state of health and your smoking status.

Some companies offer guaranteed or fixed premiums, whilst other plans reserve the right to review premium levels on a periodic basis.  There is usually a small additional cost for the advantage of a guaranteed premium.

Premiums for Renewable Term Assurance are generally reviewed every five or 10 years at which time they will be re calculated based on your current age and the provider’s current terms.

Most policies allow you to ‘index’ the cover to ensure that the buying power of the policy is maintained.

Critical Illness Cover differs from Income Protection in that it pays out a lump sum rather than income. It also differs because Income Protection plans pay out if the insured is unable to work due to accident or illness, which could include stress, a broken leg or a bad back. These are highly unlikely to be covered by a Critical Illness plan.

Critical Illness plans have exclusions which you should be aware of before you take out a plan. These exclusions may be general and apply to all policies offered by an insurer, or may be specific to your circumstances if you have a pre-existing medical condition or have a high risk job.

Care should be taken when considering replacing an existing Critical Illness plan, as you might find that you lose some benefits. Over time, due to improved medical technology, the definitions used by insurers have changed for new policies, making it harder to claim, this is particularly relevant to certain cancers and heart problems.

Additionally, if you have developed any illnesses since you took out the first policy, pre-existing conditions may not be covered under the new policy. You may be able to get cheaper cover if you switch to another company but the cover might not cover all of your needs.

Advantages

  • A lump sum payment can be very welcome when an illness is diagnosed
  • The lump sum could be used to repay a mortgage
  • Critical illness cover can be combined with life cover to produce a more comprehensive package
  • The payment of the lump sum is linked to whether you have the illness and meeting the insurer’s definition, not to your ability to work

Disadvantages

  • No income is paid
  • If you suffer a critical illness after the end of the plan’s term, you will not receive a payment
  • Term Assurance never accrues a value

Next steps

If you feel that you need to take out cover against a critical illness, or have your existing plans reviewed, then please contact us either by calling us on 0845 074 7778 or 0115 933 8433, alternatively you can email us at info@investmentsense.co.uk

We will discuss your requirements with you, and make a recommendation having considered your circumstances and any existing policies that you may have.