Could your family cope financially if you were to become seriously ill and could not earn a living?
It’s not a nice question to consider, but it’s an important one to ask, especially as you can buy insurance to take the sting out of the problem.
So if you think your loved ones would struggle to pay the mortgage or meet the cost of other household bills, you should consider critical illness insurance.
The policy pays out a tax-free lump sum if you are diagnosed with one of a list of serious conditions within the policy term.
For example, if you take out a 25-year policy with a sum insured of £100,000 and suffer a stroke at any point during that period, you would be able to claim the £100,000.
You can spend the money how you wish, so you could use it to clear any debts, pay for medical bills or to adapt your home to your particular needs. In other words, it can offer a financial lifeline in a time of crisis.
Critical illness cover is also usually cheaper if you buy it alongside life insurance
You could also invest some or all of the lump sum to generate an income for your family to live on.
Cover for children
Many insurers also offer children’s critical illness cover at no extra charge, though the pay-out is usually limited to between £10,000 and £25,000.
List of conditions
With critical illness cover, you should always read the small print carefully so that you understand exactly what the policy covers.
The list of conditions can be long, with some insurers including more than 60 ailments and injuries. But you might not get a pay-out unless the illness is particularly severe or results in permanent symptoms.
Some forms of cancer, for example, are not included because they are easily treatable. You might also be unable to claim for cancer until it has reached a specified stage.
Similarly, a mild stroke or mild heart attack could be excluded on the basis of severity. So it’s always important to know what ‘exclusions’ are listed in the policy small print.
Most policies pay out only once. However, a number of insurers will make a small payment if you are diagnosed with a less severe illness. The policy will then continue and you could, in theory, lodge a further claim if you were diagnosed with a critical condition at a later stage.
Critical illness polices stop providing cover if you stop paying the premiums. You should therefore be certain that you can afford the insurance at the outset.
There is no cash-in value to critical illness cover, so you don’t get any money back if you survive to the end of the term or stop the policy part-way through.
Bringing costs down
Premiums for critical illness cover depend largely on the likelihood of a claim. So, the older and more unhealthy the applicant, the higher the premium.
You can often bring down the cost of cover by adopting a healthier lifestyle, for example, by losing weight or quitting smoking.
Critical illness cover/life insurance combination
Critical illness cover is also usually cheaper if you buy it alongside life insurance. In fact, some insurers do not even sell standalone critical illness cover.
But remember that there is normally only one pay-out. So, if you claim for a critical illness, you would not receive a further payout on death.
Premiums are usually fixed, but some companies offer so-called reviewable premiums. The cost of cover is then regularly reviewed and could rise during the policy term.
Insurance companies have to publish information about their claims and it’s worth taking a look at the data. For example, a firm might charge a low premium, but it might also turn down a high proportion of claims.
You can boost your chances of a successful claim by filling in the application form carefully and accurately.
Make sure you answer all the questions in detail, paying particular attention to the medical questions. Insurers sometimes refuse claims because the policyholder failed to disclose all relevant health information.