Critical Illness Insurance
What is critical illness cover?
Critical illness cover is an insurance policy that would pay a lump sum or a monthly payment in the event that the person who holds the policy becomes critically ill. There’s a vast difference in policies and what’s covered by them, but typically speaking it can range from forty illnesses, right through to over one hundred.
As an adviser we would typically guide a client in covering the illnesses they deem to be important, versus their budget, whether that’s a very low cost plan for critical illness or one that covers for everything. All the major policies cover cancer, heart attack, stroke, permanent disability, blindness and deafness.
When you’re covering for critical illnesses, your health is going to be looked at in much more detail, so if you do have pre-existing conditions, there are things called exclusions within a critical illness policy. Just like any insurance, the younger and healthier you are, the better.
How does it differ from life insurance?
The way the policy pays out is different. Once you tell the insurance provider that you’ve become critically ill, you’d have to go through a claim process and then you would be paid out accordingly. Life insurance only pays out for terminal illness, which means you have been diagnosed as terminally ill and don’t have very long to live, typically less than twelve months.
Who is critical illness cover for?
I think everybody should have it, and as an adviser I try to point out the risks to everybody so they are fully aware and understand what everything is. Everybody differs, but it’s a good policy that certainly protects people. The degree of cover comes down to how much the customer is willing to pay and how much cover they want.
Whereas life cover is not for you, it’s the financial security of those you’re leaving behind, critical illness can be for you. It pays out to protect you, but can also protect your family, because they are potentially going to suffer if you become critically ill.
An important thing to mention is that children’s critical illness is covered on most standard plans, and stats say that children’s claims are the fifth highest claimed, after cancer, heart attack, stroke and multiple sclerosis. They might not be covered to the degree of payout that you are, but you would get a financial payout to help you stop working for six months and look after your child.
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Can you combine life insurance and critical illness cover?
Yes, you can. The way that it’s priced and put together for the insurers is called a multiplan, so it’s life and critical illness as one plan. If the insurance provider is going to cover you for critical illnesses, which has a higher chance of happening than death, then they will add the life insurance for a very small premium or sometimes free.
Does critical illness cover differ from life insurance in terms of costs?
Different providers have different cost starting points that go up and down, depending on how many illnesses are covered and what benefits are included. There is no hiding that it’s more expensive than life insurance, because it’s going to cover more events that have a higher potential to happen, but customers look at what the cost is and make the decision.
Critical illness cover has gone up because of the pandemic, because of the amount of claims for breathing problems and all the other potential critical illnesses caused by Covid. It’s all relative, however, and you’ve got to look at how much it is going to be worth.
Critical illness is a good policy to review the pricing of, because a smoker that started a policy ten years ago, that is now a non-smoker, the price may reduce. This can also be the case for someone that has lost a significant amount of weight. Take caution when you cancel a critical loans policy, because you may have a critical illness policy that covered illnesses in the past and now the new policy doesn’t cover those illnesses.
Don’t be surprised if the critical illness cover is three times more expensive than life cover, or even greater, depending on your health or how much you’re covering. What I try to do is offset how much you’re spending versus what the payout would be a life changing amount of money and whether it would be worth it. There’s a big difference between covering the full amount of a mortgage and the amount you actually need. At least if you’ve got some type of insurance, it’s better than none.