Understanding Critical Illness Cover

Do I need critical illness cover?

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Our guide explains all you need to know about this important form of financial protection.

What is critical illness cover?

Critical illness cover is a form of insurance which is designed to pay out a tax-free lump sum in the event that you are diagnosed with a specified illness or medical condition during the term of the policy.

It can provide peace of mind that you don’t have to worry about your financial situation at what is already likely to be a stressful time. 

You can either take out standalone cover, or you can usually add it to any life insurance policy you buy.

Why do I need critical illness cover?

If you don’t have a significant savings, critical illness cover can provide valuable financial support in the event that you become seriously ill.

Your lump sum pay-out can be used to cover some of the following costs:

  • Repay all or part of your mortgage
  • Replace your lost earnings while unwell
  • Pay for household bills and other outgoing
  • Pay for private medical care or specialist treatment. 

Don’t assume that if you don’t have dependents you don’t need cover. If you live on your own, for example, you will need to ensure any rent or mortgage commitments are paid each month.

The last thing you want is to have to worry about keeping the roof over your head when you are unwell, recovering from injury or adapting to incapacity.

What does it cover me for?

"Don’t assume that if you don’t have dependents you don’t need cover. If you live on your own, for example, you will need to ensure any rent or mortgage commitments are paid each month."

Critical illnesses must cover certain ‘core’ conditions, which are cancer, heart attack and stroke.

However, policies vary widely in terms of other conditions they might cover. For example, the most comprehensive policies may cover you for around 40-50 illnesses, including conditions such as multiple sclerosis, Alzheimer's, deafness, blindness or loss of limbs. 

Always read the small print before buying, so that you understand exactly which illnesses are included, as well as those which aren’t.

What should I consider when buying a critical illness policy?

1.      Level of cover

Although cost will obviously be a factor when choosing a critical illness policy, the cheapest may not necessarily be the best. It’s vital that you opt for a policy which provides comprehensive cover, so always check to see how many conditions are covered. 

Some policies can offer additional benefits. These can include mastectomy cover, low grade prostate cancer cover, or accidental hospitalisation benefit. All of these may pay out smaller lump sums if you qualify, without affecting your overall benefit.

2.      Policy add-ons

Bear in mind that policies which seem to cover very unusual illnesses may not be worth paying over the odds for, as you are less likely to claim for one of these conditions. 

Look for policies which offer ABI+ Definitions. This means that the critical illness definitions shown on the policy exceed the definition set by the Association of British Insurers (ABI), the trade body for insurance companies. 

In theory, this should make it easier to submit a successful claim for that particular condition, as ABI+ definitions are wider than the industry standard.

Many critical illness policies automatically include total and permanent disability cover, but it is sometimes offered as an extra for which you will be charged an additional premium. 

If you opt for this cover, it will pay out for any condition which leaves you totally and permanently disabled, even if that condition isn’t listed within the policy. 

3.      Protection for children

If you have children, then you may want to consider adding children's critical illness cover to your policy. This will usually pay out a small lump sum, typically between £15,000 and £25,000, if your child is diagnosed with one of the illnesses specified on the policy.

4.      Likeliness of making a claim

Statistically, according to the Association of British Insures (ABI), we are five times more likely to claim on a critical illness policy than a life insurance policy before the age of 65. As a result, life insurance is less expensive than critical illness cover. 

However, even though it might cost more, it could prove invaluable, especially if you know your family would struggle to make ends meet if you couldn’t work due to a serious health condition.

Making a claim

Protection insurance policies, such as income protection, life insurance and critical illness cover, have a high percentage of claims payouts. Insurers have to make their claims data publically available, which is worth taking a look over when deciding which provider to go for.

The ABI found that in 2016 £4.7 billion was paid to British households. The data below shows the number of claims made in the same year and how many of them were successfully paid out. 

Policy type

Number of claims paid*

% of new claims paid

% of new claims declined

Average value of claim paid

Critical illness cover

15,464

92.2%

7.8%

£67,733.74

Life insurance

36,814

98.3%

1.7%

£75,061.78

Critical illness cover vs terminal illness cover

Don’t confuse critical illness cover with terminal illness cover. Life insurance policies usually include terminal illness cover as standard and so will pay out the sum assured if your doctor has confirmed you have a terminal illness and are likely to die within 12 months.  

Critical illness, however, is designed to cover serious health conditions from which you might recover. 

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