A serious illness, such as cancer or heart attack, affects one-in-four women and one-in-five men before retirement age. Critical illness insurance is designed to ease the financial pressures by paying a tax-free lump sum if you become seriously ill or totally disabled. You must normally survive at least one month after becoming critically ill, before the policy will pay out.
Critical illness insurance pays benefits on the diagnosis of certain specified critical illnesses. The range of diseases covered has increased to more than 30, though contracts differ from one company to another.
All policies should cover seven core conditions. These are cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. They will also pay out if a policyholder becomes permanently disabled as a result of injury or illness.
But not all conditions are necessarily covered. In May 2003, insurers adopted new rules set by the Association of British Insurers that tightened the conditions under which customers could claim on critical illness insurance (CII) policies.
The changes mean that policies won’t cover conditions such as non-invasive skin cancers, and less advanced cases of prostate cancer. Tumours that have not yet invaded the organ or tissue, and lymphoma or Kaposi’s sarcoma in the presence of HIV are excluded.
There are also more restrictive conditions for heart attacks. There has to be evidence of typical chest pain, or changes in the electrocardiogram (ECG), for example, if a claim is to be successful. Cardiac conditions, such as angina, will not be covered.
For single people with no dependants, critical illness cover that pays off the mortgage is more important than having life cover, as it means you have fewer bills or a lump sum to play with if you are very unwell. But it can also be useful if you are part of a couple. It provides a welcome financial boost at a time of emotional stress and financial hardship.
Most providers allow people to take out cover between the ages of 17 and 70. It can be for a specified number of years, as long as your mortgage, for example, or for life. Or you can just take out a policy and keep it going for as long as you choose. When you buy a policy there will normally be a waiting period, typically three months, before you can make a claim.
If you want to take out cover, you should do it as soon as possible. The rise in claims and the cost of advances in medical technology have led many insurers to cut back on the conditions they cover, or to impose restrictions on what counts as a critical illness.
We can advise you about the most appropriate plan for your particular requirements. Policies vary widely in the illnesses they cover so don’t simply opt for the cheapest plan because it will probably offer limited cover. On the other hand, don’t go for the policy that covers everything as it may not be the most appropriate.
Typically, the benefit is paid as a one-off lump sum and is tax-free. The maximum payable varies between providers. 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 you use the benefits is entirely up to you. They may be used to pay off a mortgage or clear outstanding debts. They can also help to pay for childcare or home help. Crucially, benefits from a critical illness policy give you time to come to terms with your condition and decide what changes you want or need to make to your life.
Benefits are payable only to survivors so the shorter the survival time required before the policy pays out, the better. Some insurance companies will pay as long as you survive a critical illness for a minimum of 15 days. However, policies that combine critical illness and life cover may be bought.
