Critical illness cover

Is critical illness cover worth it?

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If you were to become seriously ill and could not earn a living, would your family cope financially?

What is critical illness cover?

Critical illness cover is a form of insurance that pays out a tax-free lump sum if you are diagnosed with an illness or medical condition specified in the terms of the policy.

You can spend the money how you wish, so you can use it to clear debts, pay medical bills or adapt your home to your particular needs.

How does critical illness cover work?

Critical illness cover pays out when you fall ill with a listed condition. So if you take out a 25-year policy with a sum insured of £100,000 only to develop cancer soon after, you would be able to claim the money. In effect, this type of policy offers a financial lifeline in times of family crisis.

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.

What conditions does critical illness cover include?

The list of conditions varies between providers, but some policies may not cover all the illnesses you might expect. As with any insurance policy, it’s important to read the small print carefully so you understand exactly you’re protected from.

Some insurance companies include more than 60 ailments, conditions and injuries. However, even if your illness is on the list, whether you get a pay-out could all depend on how severe or permanent the condition.

Some forms of cancer, for example, are not included because they are easily treatable and not seen as a significant threat. Some companies won’t pay a 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.

Most people buy level-term insurance

According to MoneySuperMarket data correct as of August 2019

How many pay-outs am I covered for?

Most policies pay out only once, but some policies allow for a small payment if you are diagnosed with a less severe illness.

Your policy would then continue and, in theory, you could make a further claim down the line should you be diagnosed with a critical, more serious condition or illness.

How much does critical illness cover cost?

Make sure you can afford the premiums at the outset, because critical illness policies stop providing cover if you stop paying the premiums.

Moreover, there is no cash-in value to critical illness cover if you don’t use it. You won’t get anything back if you survive to the end of term or stop the policy part-way.

As critical illness cover depends on how healthy you are, the premiums will increase as you get older and unhealthier, as the likelihood of your making a claim rises.

You can often bring down the cost of cover by adopting a healthier lifestyle: by losing weight or quitting smoking you are proving to the insurer that you are willing to improve your health generally, lessening the likelihood of a claim.

Should I get critical illness cover and life insurance?

You can make your critical illness cover cheaper by combining it with or buying it alongside normal life insurance. Some insurers do not even sell standalone critical illness cover. It is worth noting that there is normally only one pay-out, so if you make a claim for a critical illness, your family would not receive a further pay-out on death.

Most premiums are fixed, but some companies offer what are known as reviewable premiums – which have lower starting premiums that could rise during the policy term.

Will my insurer pay out?

It’s is worth taking a look at the available data before you choose a critical illness cover policy. All insurance companies must publish information about their claims, so this is easy to get.

In 2018, more than £5.3bn was paid out in some form of protection insurance policy (such as critical illness cover, life insurance and income protection), according to the Association of British Insurers – a year-on-year increase of £200m. 97.6% of all claims were paid out, and the average pay-out was £81,000.

The importance of full disclosure

In order to boost your chances of a successful claim, make sure you fill in your application carefully and accurately, answer all questions in detail – especially the medical questions. Claims often get refused because the policyholder did not disclose all the relevant health information.

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