Extra protection - for when you need it

Posted on 17/11/2021

Critical illness cover helps to financially protect you and your family in the event of a serious illness (eg. cancer, heart attack, stroke etc.) and will pay a tax-free lump sum. 
This lump sum could help you with everyday bills, paying your mortgage/debts or help with medical treatment if needed. Alternatively you could use the funds to make alterations to the home or spend money on making memories with your loved ones – the choice is yours. 

Check what the policy covers

Warning: The cheapest policy is rarely the best for your needs!
Each critical illness policy will cover some different conditions, as well as the severity of them. Generally, the more conditions that are covered, the more expensive the cover is likely to be. However the Association of British Insurers (ABI) enforces that certain illnesses are covered as a minimum by insurers.  
A critical illness policy also generally covers terminal illness which will pay out when you’ve been given less than 12 months to live. With any critical illness policy you need to ensure that you are happy with the conditions covered by the insurer and assess if the cover offered is adequate for your needs. 

How critical illness is paid

Critical illness, just like single life assurance, will only pay out once and will end when it has paid out. It is also important to note that combined life and critical illness cover will only pay out once, either when you are diagnosed with a critical illness or on death. These policies are usually cheaper than having two separate plans, however having two separate plans could provide you with two pay outs: one paid to you upon being diagnosed with a critical illness and the other, a life policy, paying out on your death. 
If a critical illness does not meet the conditions specified by the insurer then they will not pay out – so always check what the policy covers.

Considerations before taking out cover

Before committing to a critical illness policy, you will need to establish your individual needs and ask yourself a number of thought provoking questions:
  • What would happen if you fell critically ill and couldn’t work for some time? 
  • Would your savings be enough to cover your bills? 
  • Would you have to consider downsizing because you cannot maintain your standard of living? 
  • What might the impact be on your family if you are the main or sole earner?
Some employers offer workplace benefits to help in the event of a critical illness, but you shouldn’t fully rely on these, as they could be withdrawn by your company. Or you could change employer in which case the existing benefits will cease and a new employer may not offer such cover. 
You will also need to decide how long you need the cover for and how much would be enough to tide you over until you are fit to return to work, or even if you couldn’t work. Would you prefer a level lump sum (where the amount stays the same) or critical illness on a decreasing basis, such as to cover decreasing mortgage payments (where the lump sum goes down each year). You could also have a level lump sum which is indexed – protecting you against inflation. 
If you have existing critical illness cover in place, it is worth reviewing to check it still meets your needs, as conditions, terms and pricing have changed in recent years.
There are many important factors to take into consideration when reviewing critical illness cover: our Dentons Mortgages Consultant could help you with these decisions and to find the right cover for your individual needs. 

Some statistics:

  1. There are more than 166,000 cancer deaths in the UK every year – that’s more than 450 every day! 
  2. Stroke strikes every 5 minutes – and affects 100,000 people each year.
  3. Heart and circulatory diseases cause more than a quarter of all deaths in the UK – that’s more than 160,000 deaths each year.
  4. Musculoskeletal conditions are the second largest single cause of sickness absence in the UK with more than 480,000 people affected by work related injuries in 2019/20.
  5. According to the ABI, over 90% of critical illness claims were paid out in 2019.
Sources:
  1. Cancer Research UK 2021
  2. BHF 2021
  3. Stroke Association 2021
  4. Office for National Statistics 2021
Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of financial advice. We recommend that you take financial advice before making any financial decisions.