Give yourself and your family a safety net if you fall ill with critical illness cover.
Critical illness cover is a type of insurance policy designed to provide financial support to you and your loved ones if you were diagnosed with a serious illness.
What would happen if you fell severely ill or had a severe accident? What would be the financial impact if you could not work for an extended period?
You may be in good health today, but you never know what's around the corner. Illness could stop you from working in your current profession, or you could contract a permanent disability. Your employer may support you for the first few months as you recover, but it won't last long-term.
It is there to help support yourself and your family should the worst happen.
Many people add critical illness cover when they buy life insurance. You pay monthly premiums for this add-on alongside your life cover. Your policy contains a specific list of conditions. How many critical illnesses are included on the list depends on how much you pay.
If you're diagnosed with one of these illnesses during your policy term, your insurance company will pay out a tax-free lump sum, which you can use however you choose. For example, you can use it to cover health-related costs.
In most cases, critical illness policies will cost more than individual life insurance policies. To save money while ensuring you have the right cover in the right places, here's a sequence you can follow:
Another reason to own more than one life insurance policy is that you may need financial support more than once.
Your life insurance policy with critical illness cover added will pay out when you receive your critical illness diagnosis or when you die, not both. So your policy will help during the early stages of your illness. However, your family wouldn't be able to claim again when you pass away.
For example, a smaller life cover policy with critical illness cover added could pay your medical bills, leaving the larger payout to support your dependents after you're gone.
These two types of covers may sound almost identical, but some differences exist.Terminal illness cover is typically part of your life insurance policy, added at no extra cost. It pays when you are diagnosed with an illness which cannot be cured and you have a life expectancy of 12 months or less. You can use that payout to support yourself and your family before you pass away.
Critical illness cover pays out when you get a diagnosis of a severe illness from your insurer's pre-specified list. It primarily supports you and your family because you cannot work. With many of the illnesses on an insurer's list, you could still be able to live a long life.
The similarity between critical and terminal cover is that both types of cover only pay out once. Your life insurance policy automatically ends if your terminal cover pays out.
Critical illness insurance provides many significant benefits to policyholders. What's the most important to you?
Critical illness insurance will pay out if you are diagnosed with any of the conditions listed in the policy documents. The most comprehensive policies can cover you for more than 100 conditions. In contrast, more limited policies only cover you for around ten critical illnesses. Of course, the more diseases covered, the higher your monthly premiums.
Critical illness cover differs from income protection insurance in that you're restricted to a specific list of illnesses in your policy documents. Income protection pays out if you can't work, no matter the medical reason.
Examples of conditions covered by most policies include:
Which conditions are covered by your policy will depend on the terms you opt for, however most policies will not cover you for the following:
Most policies will also exclude pre-existing conditions. If you can get a policy to cover a disease from your medical history, it will typically be more expensive.
You may also struggle to get cover against hereditary conditions passed through your family's medical history. As always, check the terms of your policy documents carefully.
Most insurance providers will require you to purchase critical illness cover as a permanent UK resident.
Your critical illness cover cost varies widely depending on your chosen policy and circumstances. Factors that could affect your monthly payments include:
Unlike critical illness cover, which restricts you to a specific list of medical conditions, income protection insurance covers almost any illness or injury that stops you from working.
Successful income protection claims pay you a percentage of your monthly income until you are well enough to return to work or your policy term ends.
When you purchase income protection cover, you can choose for it to last a set number of years or until your anticipated retirement age.
The 'deferred period' is the waiting time between you claiming your income protection insurance and the policy paying out.
You can set the deferred period when you take out your income protection cover. The shorter the deferred period you choose, the higher your monthly premiums.
Critical illness insurance pays you a tax-free lump sum if you contract an illness from a specific list on the policy. Depending on your level of cover, you may need more than the lump sum to support you for long.
Income protection can be used as a short-term fix, but it's often taken out to protect you from a long-term inability to work. You can even choose for it to cover you until retirement age, giving you security should you become unable to work.
There are several different types of income protection cover, each with its benefits and disadvantages. Compare income protection insurance types and see what's best for you.
Short-term IP covers if you cannot work for a short period due to sickness or injury. For example, if you broke your leg. Most policies last from 6 months to 2 years.
Long-term income protection covers you if you become severely ill and cannot work. For example, if you become permanently disabled.
This type of income protection considers that your salary should rise with inflation during your career. When you take out an index-linked policy, how much cover you have grows each year, aligned with inflation.
This type of cover considers your employer's sick pay policy and how long it lasts. If you claim, your policy will pay out a lower amount while your employer still pays you a higher percentage of your salary. If your employer reduces the percentage after a specific period, your income protection pay rises.
With life and critical illness cover, it's essential that a balance is found, so you're protected but not over insured or overpaying.
As with all insurance, the higher the value of your cover, the higher your premiums.
Most insurers allow you to insure 50% of your gross salary.
Think about how much money you need every month to pay your mortgage and household bills while maintaining your standard of living.
Don't underestimate the level of cover you need to lower your premiums.
Depending on your policy, your income cover may come with a wide range of extra benefits that could help you throughout your insurance term. These could include:
