Critical illness cover – Do you need it?
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Critical illness cover, also referred to as critical illness insurance, is a long-term insurance policy where you’ll get a tax-free ‘lump sum’ – a one-off payment – if you’re diagnosed with one of the serious illnesses covered by your insurance policy. It’s designed to pay off your mortgage, debts, or pay for alterations to your home such as wheelchair access should you need it.
What does critical illness cover cover?
You critical illness insurance will pay out if you get one of the specific medical conditions or injuries listed on the policy. Not all conditions are covered. The policy will also specify how serious the condition must be. Examples of critical illnesses are:
- Heart attack
- Certain types and stages of cancer
- Conditions such as multiple sclerosis
Most policies will also pay out if you are permanently disabled as a result of injury or illness. It only pays out once and then the policy ends.
What is not covered by critical illness insurance?
Some serious illnesses might not be covered by a critical illness policy. For example, some cancers and ‘chronic’ or long-lasting conditions that could mean you can’t work might not be covered.
Health problems you knew you had before you took out the insurance are also very unlikely to be covered.
Unless you have a combined life insurance with critical illness policy this type of insurance does not pay out if you die.
There are different types of critical illness insurance policies available, so it’s important to know exactly what’s covered.
When might you need critical illness cover?
Don’t rely on benefits from the state to support you if you become critically ill – these are probably less than you think.
The money you get from a critical illness policy can be used to pay off a mortgage, to pay medical bills, home modifications or for anything else.
Critical illness cover could be a good choice for you if:
- You don’t have savings to tide you over if you were seriously ill
- You don’t have a good employee benefits package to cover a period of time off work due to sickness
How likely are you to make a claim?
Insurance is based on risk. How likely is it that you will make a critical illness claim?
If you are young, fit, well, with a good family medical history and a healthy lifestyle, your chances of getting an illness severe enough to be covered by one of these policies might be fairly low. The older you are, the more chance you have of getting ill – but to reflect this, the premiums are higher and any pre-existing medical conditions won’t be covered.
Medical technology keeps advancing, which means that the impact of many illnesses is less serious than before. Screening techniques have also improved so that some cancers can be diagnosed earlier and treated before they reach the critical stage.
Who doesn’t need critical illness insurance?
You probably don’t need critical illness cover if:
- You have enough savings to fall back on, or have some other way to pay off your mortgage, for example, if you couldn’t work
- You have a partner who can cover living costs and any shared commitments, like a mortgage
Is critical illness insurance good value for money?
Critical illness cover will only pay out if you are diagnosed with one of the illnesses specified in the policy. It will not cover you if you can’t work due to any other illness and this is more likely to happen.
This type of insurance can be expensive over the long term, especially if linked to a 25-year mortgage. Before you buy you need to be sure you can keep up the payments over the long term.
However, successful claims for people with no other way of supporting themselves can make a big difference in keeping them going financially, just when they need it most.
Other insurance you might need as well as, or instead of, critical illness
If you have dependants – like children, or a partner – then life insurance will most likely be more important than critical illness insurance. But life insurance only pays out if you die (or are diagnosed with a terminal illness).
You also need to think about how you would get by if you suffered an illness not covered by a critical illness policy and couldn’t work. In these circumstances income protection insurance may be more suitable and a cheaper option.