Guide to Critical Illness Cover

A payout from critical illness insurance provides you with a lump sum of money to cover expenses and lost income in the event that you are diagnosed with a serious illness, or you become disabled, and are unable to work.

Critical illness cover is often offered as an add-on to your core life insurance policy, but some insurers allow it to be sold as a separate product.

It’s important to be clear on what kinds of medical conditions your critical illness policy actually provides coverage for. This kind of insurance only covers long-term diseases such as cancer, multiple sclerosis, or Parkinson’s disease, and very serious, disabling medical events such as a traumatic brain injury, heart attack, stroke, or loss of limbs.

Critical illness also only kicks in where you survive for at least 10 days after you are diagnosed, or undergo surgery. If you pass away, this type of policy does not pay out.

Be sure to check the details of your particular policy before you sign, as not all policies provide coverage for the same set of circumstances and diseases. Some policies provide cover for lots of illnesses; others just cover a few.

If you’re diagnosed with a qualifying condition during the life of your policy, you may receive a lump sum payout – the size of that payout is determined by the amount of cover you select when you take out the policy, and your age.

The money is intended to help cover the cost of living expenses such as your mortgage or rent, household bills, and childcare, which you may otherwise have trouble paying if you cannot work. You may wish to also add an amount to your cover total to provide for expenses such as property adaptations in the event that you are disabled.

Critical illness cover isn’t about leaving money behind for others. It is designed solely to help you manage financially if a health diagnosis leaves you unable to earn a wage.
Some policies also provide children’s cover at no extra cost. If you claim for a child, the payout will not be the full cover amount, and your main policy will still be in place if you continue to pay the premiums.

Your premium costs will depend on a number of different factors including:

• What expenses you will need to cover
• How long you want the cover to last
• Your age and health at the time of taking out the policy
• How much you can afford to pay in monthly premiums
• The more likely you are to experience ill health, the more you will be expected to pay in premiums.
• Critical illness cover usually involves a fixed monthly premium that doesn’t change as you age, however. So in many respects, it pays to start paying into a policy early.
  

Pros

• Peace of mind that you won’t have to worry about how to cover living expenses and bills should you become disabled or too unwell to work
• You will have money to make adaptations to your home if you become disabled
• Payouts are tax-free

Cons

• Not all illnesses and conditions are covered
• You may not be covered for pre-existing conditions
• There is no cash value at the end of the policy, meaning there is no payment to family if you die

No. The lump sum you receive from a critical illness claim isn’t classed as income, so it is tax-free.

Insurance policies are only valid as long as you continue to pay your premiums. If you stop, the policy will be terminated. If you are in financial difficulties, however, and struggling to afford your premiums, speak to your insurance provider as there may be alternatives to cancelling the policy. Some providers allow payment breaks, and there may be a possibility of transferring to a cheaper plan that means you don’t lose your cover altogether.

Anything we haven’t covered? Get in contact and let us know.