Critical Illness Insurance Considerations

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It is a chilling thought that 95% of adults in the UK have no financial protection to help them cope were they to suffer a serious illness. But having to take time off to recover can wreak havoc on the family budget.

Some employers offer critical illness insurance cover for workers who suffer from long-term illness, but they are the exception rather than the rule. And the welfare state is no longer as kind as it used to be. Benefits payable to those who fall ill and cannot work are under constant review and in some cases have been reduced. Critical illness insurance is a possible solution. Since policies were first offered in this country in the mid-Eighties sales have rocketed from 132,000 in 1991 to 626,000 in 1997.

Yet the sad fact remains that too few people have seen the critical light. Have you? If not, read on - but ignore this resource on critical illness insurance at your peril.

What is critical illness insurance?

Also known as dread disease cover, critical illness insurance cover pays benefits on the diagnosis of certain illnesses. Over the years the range of diseases covered has increased to more than 30, though contracts differ from one company to another. However, most policies will pay after heart disease, strokes, renal failure, some cancer, paralysis, major organ transplants and coronary artery bypass surgery.

They will also pay if a critical illness insurance policyholder becomes permanently totally disabled as a result of injury or illness.

How does a policy pay out?

Typically, the benefit is paid as one-off lump sum and is tax-free. The maximum payable varies between providers, but usually ranges between £100,000 and £250,000. Payment is generally made within 28 days of a serious illness being diagnosed though in the event of permanent disability it will take longer usually six months to a year.

How may the benefits be used?

It is entirely up to you. They may be used to pay off a mortgage or clear outstanding debts. They may also be used to pay for childcare or home help as well as adaptations necessary to a home or car. Crucially, benefits from a critical illness insurance policy give you time to come to terms with your condition and decide what changes you want or need to make to your life.

Does a critical illness insurance policy pay if I die?

No. Benefits are payable only to survivors. Obviously, the shorter the required survival time, the better. Some insurance companies will pay as long as you survive a critical illness for a minimum 15 days. However, policies that combine critical illness and life cover may be bought.

Is critical illness cover the same as Permanent life insurance?

No. They cover different needs. A Permanent Life Insurance policy or Income Protection Life Insurance as it is sometimes referred to - pays a regular income in the event of long-term sickness or injury. The payments cease if the policyholder recovers from illness. In contrast, a critical illness policy will make a one-off payment after diagnosis of a serious illness, providing the policyholder with the opportunity to protect his or her quality of life by allowing repayment of a loan, funding a holiday for convalescence or paying for care.

There are a number of instances where payments under one plan would not be allowed under. If, for example, you suffer from severe back pain, you will not be covered under a critical illness insurance policy, but will probably qualify for payment under the terms of an Income Protection Life Insurance plan. In contrast, a minor stroke would probably qualify for a critical illness payment, but it would not necessarily be eligible under an income protection scheme.

Why should I buy such insurance?

For some people, surviving a major illness or accident followed by years of failing health is a fate worse than death. And as medical science advances, the chances of surviving a major illness are greater than ever.

The financial consequences of serious illness can be massive, leading to a loss or drop income for the sufferer as well as limiting the earning potential of any carer. A critical illness insurance policy can provide a welcome financial boost at a time of great emotional stress and financial hardship.

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