Giving some thought to critical illness insurance

If you’re thinking about taking out critical illness insurance cover then you may just have experienced an important event in your life like getting married or buying a house.

Alternatively, perhaps you have just changed job and your new employer offers insurance for critical illness as a benefit and you want to know more.

What does it do?

The basic function of critical illness insurance is to provide a lump sum in the event that you are diagnosed with certain critical illnesses or are disabled as a result of accident or illness.

There are two main categories of insurance for critical illness cover.

Mortgage related

Some insurance for critical illness can be tied in to your mortgage. Policies of this type may typically be referred to as a decreasing term cover.

This means that the amount you could expect to get in the event of a claim reduces over time in line with your mortgage. This assumes, of course, that you have a mortgage that is in fact getting smaller - i.e. where you are making monthly repayments to both the capital and the interest.

Some of these policies may require that the mortgage is paid off. Others may allow you to use the money as you choose.

Fixed Term

Some policies known as fixed term cover. For these policies, if you were diagnosed with a covered illness, then you would receive the fixed amount of money agreed when you first took out the policy.

This lump sum can then be used as you see fit – perhaps to pay off debts or just to give you the security that there’s some money in the bank to fall back on.

What illnesses are covered?

Different providers will have their own lists of conditions that are and are not covered.

Typically the types of conditions covered are likely to include:

• cancer;
• heart conditions (angina may be excluded);
• strokes;
• kidney problems;
• organ transplants;
• multiple sclerosis;
• disablement through injury or accident.

Are there conditions?

As with all insurance, terms and conditions will vary by provider and it typically makes good sense to read policy documents carefully so you understand exactly what is being provided.

Some critical illness cover may have a waiting period of a few weeks or months before cover actually starts. You may find though, that if your employer as part of your benefits package covers you, then cover may start immediately.

End of term

Critical illness insurance will only pay out if there is a valid claim made on it. If you get to the end of the agreed term without making a claim, no lump sum is paid out.

There may be options to combine critical illness insurance cover with other forms of life assurance to provide an end of term payment.

What if?

A change in family circumstances leading to an increase in financial and legal responsibilities may often lead to thoughts about how your family could cope if you were unable to work as a result of a critical illness. Critical illness insurance may be able to provide the peace of mind you’re looking for.