“Will pay out a cash lump sum if the insured person is diagnosed with qualifying critical illness within a preselected number of years…it is usually taken out as an add-on to life insurance policies.”

Why would I need Critical Illness cover?

People often take out Critical Illness cover as an extra benefit connected to their life insurance. The life insurance policy would payout if the insured person died, it wouldn’t pay out if they became seriously ill. If someone took out Critical Illness cover with their life insurance, the policy would payout the same cash lump sum on diagnosis of a serious illness. This would normally enable the insured person to clear a mortgage or any other debts. It doesn’t have to be used to clear a mortgage though; it could be used to provide an income or to help with treating the illness.

It’s not uncommon these days for someone to be diagnosed with a critical illness and then live for many years afterwards, better still, make a full recovery. In these circumstances the insured person would have received the payout when they needed it the most.

Where a policy is taken out with life insurance and pays out on diagnosis of a critical illness, the policy would not pay out again if the insured person subsequently died within the term. There is an option called a ‘buy back’; if it is selected at the outset of the policy, then it would pay out twice in the above example.

What’s covered?

The list of illnesses covered differs from one insurance company to the next; typically there are between 30 and 46 illnesses covered by a critical illness policy. However, all the companies should include at least:

  • Heart attack
  • Stroke
  • Cancer
  • Surgery for Coronary Artery Disease
  • Major Organ Transplant
  • Kidney Failure/Transplant
  • Multiple Sclerosis
  • Paralysis
  • Blindness

What’s not covered?

Whether a policy will pay out will often come down to the severity of the particular illness. For example, some forms of cancer are not covered, typically those that are not life threatening. You’d have to look at the insurers’ complete list of illness to establish whether specific illnesses and conditions would be covered.

It’s a common misconception that critical illness policies pay out if you are unable to work due to illness or injury; this is NOT the basis on which they pay out. Whether you’re able to work or not is irrelevant; the policy will only pay out if you’ve been diagnosed with a specified critical illness. Critical Illness policies are often confused with Income Protection or Permanent Health Insurance policies.

Which policy & which insurance company?

To see how the insurance companies compare against each other based on claims experience, cost of cover, number of illnesses covered and other factors, they have been assessed and rated by an independent company called Defaqto

Also, the Association of British Insurers (ABI) ensures that the insurers’ policies meet their criteria. This means the policies available should be clear and simple to understand and most importantly payout when they should.

Medical advances & the cost of critical illness cover

These days, due to medical advances, certain illnesses can be spotted and diagnosed much sooner than in the past. As such, the diagnosis of a number of life threatening illnesses is more common as is the likelihood of a claim. The increased risk incurred by the insurance companies is passed onto the customers, in the form of more expensive premiums. Typically, the cost of critical illness cover is between 4 and 5 times the cost of life insurance.

In summary…

For someone that wants to cover their debts and/or earnings against being diagnosed with a critical illness.