What would happen if you were diagnosed with a serious illness that meant you were unable to work? How would you pay the mortgage, the household bills and the children’s school fees if your income suddenly stopped?

If you have a mortgage, the chances are you have a life insurance policy that will pay out a lump sum if you were to die. And if there are other people relying on your income, you might also have insured yourself for an additional sum to help your family manage if you were no longer around. But what would happen if you were ill or had an accident that meant you could no longer do your job?

Critical illness cover can help fill the gap, offering you and your family valuable financial protection. If you were diagnosed with a serious illness, such as a heart attack, stroke or certain types of cancer, the policy would pay out a tax-free lump sum to support your recovery or improve your quality of life.

Each provider includes and excludes different conditions, so it's essential to check what you're covered for

What does a critical illness policy cover?

Each critical illness policy is different, and each provider includes and excludes different conditions, so it’s essential to check what you’re covered for. Some providers will stipulate how severe a condition has to be to qualify for a payout. Others may pay out a percentage of the overall value of the insurance for less threatening conditions, such as low-grade cancers.

Generally speaking, the more basic policies will cover the most frequently occurring illness such as certain types and stages of cancers, heart attack, stroke, Parkinson’s disease and multiple sclerosis.

Some policies may cover your children and extend conditions to cover permanent disabilities such as blindness or loss of a limb.

But all policies will have exclusions. These are typically non-invasive cancers, hypertension and injuries such as broken bones.

How does critical illness cover work?

Many people will purchase critical illness cover alongside a life insurance policy, but you can also buy standalone critical illness cover.

You can choose to take out a level term policy, which means the amount you’re insured for stays the same throughout the entire term of the policy. Or you can choose to take a decreasing-term policy, where the sum reduces in line with any debt you want to pay off, like a mortgage.

If you take out a critical illness cover with a life insurance policy, you can take the critical illness element as ‘additional cover’. This means your policy will potentially pay out twice – once when you are diagnosed and then again if you were to die.

Alternatively, you can take a combined or accelerated policy, which only pays out once on either the diagnosis of the critical illness, or when you die.

How much cover do I need?

The main reason many people buy critical illness cover is to clear the balance of a mortgage if they become seriously ill. But it’s a good idea to work out with your family how much they would all need to live comfortably, if you could no longer work due to illness. You may also want to consider possible medical treatment or costs to adapt your home that might be required.

Of course, it’s impossible to predict your future needs for something that may not even happen. But simply having some kind of financial safety net in place will give you some breathing space to cover your immediate financial needs if you were to fall seriously ill.

Critical illness cover is more expensive than life insurance because you’re more likely to make a claim

How much does critical illness cover cost?

The overall cost of critical illness cover will depend on your current medical history, your chosen level of cover, your age, and the length of time you want the cover to run for.

Critical illness cover is more expensive than life insurance because you’re more likely to make a claim. According to Royal London, a 40-year-old man is 4.1 times more likely to be diagnosed with a critical illness than die before he reaches his 65th birthday.

When you apply for critical illness cover, you will need to provide your medical history and other information about your lifestyle. It’s important to answer accurately – even if that means your premiums are higher. Failure to disclose relevant information could mean the provider refuses to pay when you make a claim.

Having a pre-existing condition won’t necessarily mean you won’t be able to find a provider, but it is likely to mean any cover will be more expensive. In addition, your provider may include additional exclusions related to that condition.

Do I need critical illness cover?

Critical illness cover should be considered alongside other policies like life insurance and income protection insurance, and any current employee benefits you might already have like a workplace ‘death-in-service’ insurance policy or company sickness pay.

To find out more about other ways to financially protect you and your family, read How can I protect my family financially?

Amber River Financial Planning

Before you decide, it’s a good idea to seek the advice of a financial planner. They will help you assess your current requirements, any cover you already have, and the level of protection you need. With your input, they’ll then put together a protection strategy that gives you and your family peace of mind to know that, financially, you will all be ok – no matter what the future brings.

Get in touch

To speak to one of our team, arrange an appointment or find out more, call 0800 915 0000, or alternatively use our contact form here.