Critical illness cover explained
Critical illness is similar to life insurance, but rather than paying out a lump sum on your death, it pays out on the diagnosis of one of a number of listed serious illnesses or injuries.
The cash sum is only paid out if the illness is diagnosed during the plan term and you survive for 21 days following diagnosis. It is often used by people to pay off some or all of their mortgage or to make adjustments to the house to help them cope following illness or injury. Others choose to spend it on specialist medical treatment or simply to go on a once in a lifetime holiday. It is entirely up to the individual what they choose to spend the lump sum on.
Many people want to protect their mortgage, and most mortgage protection policies allow you to include life cover and critical illness cover. You may prefer to buy critical illness cover as a separate policy, for example if you already have all the life cover you need.
You can choose to have critical illness cover on the following terms:
•in addition to life cover
•critical illness only
•joint life first illness
What illnesses are covered by critical illness cover?
It is important to remember that the name of each critical illness is only a guide to what is covered. For example, some types of cancer are not covered. The conditions usually covered by critical illness cover are:
2.Aorta Graft Surgery
3.Benign Brain Tumour
7.Coronary Artery Surgery
10.Heart Valve Replacement or Repair
11.HIV/AIDS as a result of a blood transfusion
12.HIV/AIDS contracted in certain circumstances
13.Inability to perform duties of occupation
15.Loss of Limbs
16.Loss of Speech
17.Major Organ Transplant
18.Motor Neurone Disease
23.Third Degree Burns
24.Total Permanent Disability
These illnesses, their severity and definitions vary from insurer to insurer. Again, this is why the services of a financial adviser are so important. Your occupation will not affect the price of life insurance or critical illness cover, but it can affect the class in which you have Total Permanent Disability cover with critical illness. Like income protection, this is classed under own, suited, any or activities of daily living. Doctors can receive the own occupation class for TPD which is the most comprehensive.
Guaranteed and reviewable rates
Some insurers offer critical illness cover with guaranteed premiums for the term of the policy. A reviewable policy can but not always become much more expensive as the policyholder gets older. Typically, a reviewable policy will recalculate premiums every 10 years.
Unlike income protection insurance, most critical illness policies do not pay out on diagnosis of back pain or musculoskeletal disorders
They also do not pay out for stress or psychological conditions, which are usually covered by income protection
Some insurance companies allow you to increase your cover to keep up with inflation or after certain events for example, if you get married. If you take up these options, your premium will increase to pay for the increased cover provided
Other insurance companies may allow you to increase the cover at any time, but you will generally need to provide up-to-date information (for example about your health) before the insurance company decides whether you can have the extra cover.
Many critical illness insurance providers offer a children's benefit automatically. This pays out a cash sum if your child (usually aged between six months and 18 years) is diagnosed with one of the specified critical illnesses (this often excludes total permanent disability and inability to perform duties of occupation). In many cases, the payment is limited to the lower of £15,000 or 50% of the sum assured under the policy. Claims for children do not usually affect your cover.
Cancer only cover
Some other types of insurance for example offered by Virgin Money provide cover for cancer only. The benefits are tiered and pay out higher sums in relation to the severity of the cancer. The price of this cover is usually cheaper than more comprehensive critical illness insurance.
David Sawers, Deputy Editor, Health Insurance and Protection
With thanks to the Association of British Insurers, LifeSearch and Scottish Widows