- Do I need Critical illness Insurance?
- How does Critical Illness Insurance work?
- How much Critical Illness cover do I need & how much does it cost?
- What types of cover are available?
- Which is better: Income Protection or Critical Illness Insurance?
Do I need Critical illness Insurance?
We all know someone who has been affected by a Serious Illness, such as Cancer and the current statistics make for frightening reading.
Because no-one knows when and if they will suffer from a Critical Illness, it makes sense to take out protection to provide financial support in the unfortunate event that you are.
The purpose of a Critical Illness policy is to try to reduce the financial stress and impact of being diagnosed with a serious condition, to enable you and your family to focus on your treatment and recovery, rather than the bills.
How does Critical Illness Insurance work?
You take out a policy, choosing how much cover you need (the sum assured) and the term required.
If you suffer from any of the critical illnesses listed within your policy wording during the term, you would look to submit a claim.
Once the claim is accepted, the insurer pays your sum assured, and the policy ceases.
These funds can be used however you wish, whether meeting your financial obligations, modifying a home to accommodate a new disability or towards the best treatment available.
How much Critical Illness cover do I need & how much does it cost?
The amount of cover you will need is down to your personal preference and your attitude to risk.
However, a lot will depend on your individual circumstances and your budget.
If you have a mortgage for example, you may want to provide cover to clear the balance (or at least your share of the mortgage) particularly if you are concerned that you would not be able to return to work.
You may also want to consider an amount towards any other debts you wish to clear, any ongoing family expenses as well as any medical, treatment and travel costs.
We can guide you through your options and help to you determine a suitable level of cover taking into account any provider underwriting limits, which are thresholds after which the provider will require additional medical evidence such as GP report, blood tests or even a full medical before they can agree to provide you cover.
Critical Illness Insurance can be quite expensive given the likelihood of contracting a Critical or Serious condition during the term.
However, a lot depends on your medical history, your current medical state, how much cover you need, your age and whether you smoke.
If you are Self-Employed, it may be more cost-effective and tax efficient to consider arranging cover through your business in the form of Business Protection. In this scenario, the cover is taken out and paid for as an expense through the business.
What types of cover are available?
Much like Life Insurance, Critical Illness Insurance is available in a variety of forms:
Level Term Cover
Designed to pay a fixed lump sum at any point during the term of the policy.
When taking out Level Term Cover, you simply specify an amount of cover (the sum assured) which is the amount that would be paid by the provider if you were diagnosed with one of the conditions specified in the policy plan at any time during the term of your policy.
Decreasing Term Cover
Normally used in conjunction with a repayment mortgage to provide a lump sum that could be used to repay the mortgage if you were diagnosed with one of the conditions specified in the policy plan at any time during the term of your mortgage. The amount of cover (the sum assured) reduces gradually over time roughly in line with the balance of the mortgage.
Usually the most cost-effective form of Critical Illness as the risk to the insurer declines over time as the balance of your cover falls.
Joint or Single?
A Joint policy provides cover for two people but under one policy. It’s often a little bit cheaper than buying two individual policies but may not always be the best option.
A Joint policy will pay out once, potentially leaving the healthy partner without any cover.
If you have the budget available, then it is often worth taking out two individual policies. If set up correctly, we can often arrange two individual policies, providing independent protection for both parties, at a marginal cost difference to a Joint policy.
Guaranteed or reviewable premiums?
Guaranteed premiums remain fixed for the life of the policy, unless you’ve chosen to index-link your policy to counter the effects of inflation. This option provides greater peace of mind and the security of knowing what your cover will cost throughout the term of your policy.
Reviewable premiums allow the provider to increase the amount you pay for your Critical Illness Insurance each year. This can result in premiums that become prohibitively expensive over time.
Which is better: Income Protection or Critical Illness Insurance?
Where Critical Illness Insurance is designed to pay out a lump sum based on you contracting a specific illness as detailed in the policy definitions, Income Protection is designed to provide a replacement income should you suffer any type of illness or injury that prevents you from being able to work. This usually includes all the same conditions as a Critical Illness policy as well as many more.
Income Protection tends to offer a more comprehensive option given the broader nature of the cover and is often a much more appropriate way of protecting yourself from the financial impact of illness or injury in both the short and long-term.
A lump sum payment from a Critical Illness policy could be used by to settle a mortgage and/or modifying a home to accommodate a new disability or towards the best treatment available but you shouldn’t forget about the ongoing costs of running a household, especially if your illness stops you from working or earning an income.
An Income Protection policy could continue to provide a regular monthly income to cover your bills either up to retirement or you’re well enough to return to work.
Our team of experts can talk you through your various options, fully assess your needs and make the most appropriate recommendations based on your individual circumstances, attitude to risk and available budget.
This may be to prioritise Income Protection, to take Critical Illness Insurance or even to consider a combination of both.