critical illness guide

Critical illness is a form of insurance which will pay you a lump sum if you are diagnosed as suffering from one of the serious illnesses which is covered by your particular policy.

Suffering from a critical illness can have serious impact on your life. It is likely that you will be unable to work, so your income will be reduced while you are getting better. But your regular household bills will still need to be paid.

A lump sum payment from a critical illness policy can help you reduce or even pay off your mortgage. It could also provide funds to help you pay for private treatment or to make modifications to your home so that you can cope with any disability you may have incurred.

Critical illness insurance is a valuable policy that can help to remove the stress of money problems at a time of serious ill health and help you adapt to life after your illness.

What illnesses are covered?

Critical illness policies provide cover for a number of different critical illnesses.

All critical illness policies will include cover for cancer and heart attack , which account for the majority of claims. In addition to these conditions, most policies will include cover for a variety of other illnesses. The average number of conditions covered across the market is 27, although some policies cover as many as 38 different conditions.

Below is a list of the conditions that are covered by some critical illness policies on the market:

Alzheimer's disease
aorta graft surgery
aplastic anaemia
bacterial meningitis
benign brain tumour
blindness
cancer
children’s critical illness benefit
coma
coronary artery bypass
Creutzfeld-Jakob disease
deafness
heart attack
heart vale replacement
HIV infection
kidney failure
loss of hands or feet
loss of independence
loss of speech
major organ transplant
motor neurone disease
multiple sclerosis
paralysis of limbs
Parkinson’s disease
pre-senile dementia
stroke
terminal illness
third degree burns
total permanent disability
traumatic head injury

What your policy covers

It is essential that you understand that a critical illness policy will only pay out:

on the illnesses covered;
if the severity of your illness meets the requirements of the insurer’s definition; and
under some policies, if the illness has persisted for a certain length of time or has caused some permanent impairment.

For example, the cancer definition is not designed to cover every one of the 200 or so types of cancer that exist. It is intended to provide cover for more advanced cases. In addition, some early stage cancers and those that do not spread may not be covered.

Cover for children

Many policies will automatically provide cover for your children until they reach the age of 18. The amount payable and the definitions that apply to the cover for children may be different from the main policy. After payment of a children’s critical illness claim, the main critical illness cover carries on and cover for any other children named on the policy will continue, but you can only make one claim per child.

When you take out a critical illness policy make sure you read the definitions to understand what the policy will, and will not, cover.

Total permanent disability cover

Most critical illness policies include total permanent disability cover, in addition to illness specific cover.

Claims for this element of cover are not based on diagnosis of one of the listed critical illnesses. Instead, to qualify for this benefit, your health must be so severely impaired that you are permanently and totally unable to work.

To assess whether you qualify, the insurer will consider your level of incapacity and ascertain whether you will ever again be able to do your own job, any job, or any job to which you are suited. Under some policies, the insurer may assess this benefit against your ability to perform a number of activities or tasks.

If you meet these claim criteria, the full benefit will normally be payable and the policy will end.

Different types of critical illness policy

Critical illness insurance is usually set up to cover you for a specific term, perhaps to match the term of a mortgage. It is also possible to arrange cover for the whole of your life.

When critical illness cover is arranged for a specific term it can be arranged in one of the following ways:

Level Term

The amount of cover remains the same throughout the term of the policy. Such policies are normally used to cover an interest only mortgage or to provide family protection.

Decreasing Term

The amount of cover reduces each year, decreasing to nil at the end of the term. The cover can reduce by a fixed amount each year, or in line with a repayment mortgage to match the reducing debt.

Family Income Benefit

This type of policy is ideally suited to providing your family with a replacement income. If you suffer critical illness during the term of the policy, a regular income is paid to you for the remainder of the policy’s term.

The income can be paid monthly, quarterly or yearly. Some policies provide an income which increases by a fixed rate each year, for instance by 3 or 5 per cent.

Critical illness with life cover

It is possible to arrange critical illness cover, with or without, life assurance cover.

When you arrange a critical illness policy with life cover, the policy will pay out either on your death, or on diagnosis of a critical illness, whichever happens first

IMPORTANT

It is, therefore, important to understand that if the policy pays out for critical illness, the policy will come to an end and the life cover benefit will be lost. Arranging cover in this way is an economical way of providing cover for a mortgage debt against death or critical illness.

Critical illness without life cover

It is possible to arrange critical illness cover without integrated life cover. Under this type of policy, the lump sum benefit will only be paid out if you satisfy the claims criteria for one of the listed conditions. If you die, the policy will end and no benefit will be paid.

Inflation protection

Critical illness policies are designed to provide long term protection. Over time, inflation can erode the value of what was once an adequate level of benefit. This is particularly important if your insurance has been taken out to protect your family.

Many policies give the option to include increases in line with inflation each year, but remember that as the amount of cover increases, your premium will go up as well.

Waiver of premium

Some policies include the option to take waiver of premium. This ensures that the premiums payable to your policy are maintained, if you are unable to work due to long term sickness or disability.

This starts after a certain period of time (the deferred period) following your incapacity. This can be one, three, six or 12 months depending on your circumstances and the particular policy you have chosen.

Increasing cover

Marriage, the birth of a child, divorce and moving home can all bring with them additional financial commitments and the need to review your critical illness cover.

You could, of course, take out a top-up policy. However if your health has deteriorated since you took out the original policy, this may not be possible. In any event, it could prove time-consuming and expensive.

Some policies include ‘insurability options’ that allow you to increase the cover within a set period following a major life event such as marriage, birth of a child or increasing your mortgage.

When might my policy not pay out?

A critical illness policy will not pay out if your illness does not meet the definition stated in your particular policy. In addition, if you did not fully disclose all details of your medical history when applying for the cover, the insurance company may refuse to pay a claim.

Most policies include standard exclusions, but these vary from policy to policy. The most common exclusions are;

alcohol/drug abuse
participating in a criminal act
HIV/AIDS, except where covered by the policy
refusal to seek or follow medical advice
self-inflicted injury
war and civil commotion

IMPORTANT

Be sure to read the policy’s terms and conditions so that you understand what the policy does, and does not, cover.
Be honest about your medical history if you want to avoid having a claim turned down because of ‘non disclosure.’

Even a minor medical condition could be deemed relevant by your insurer and cause it to reject a claim if it felt that you had deliberately hidden relevant information. This could happen even if the nature of the non disclosure did not relate directly to your claim.

How much will it cost?

It is important to remember that taking out critical insurance gets more expensive as you get older. This is because premiums for critical illness policies are based on a number of factors including your age when the policy starts, so the younger you are when you take out a policy the better.

Other factors affecting your premiums are your gender, state of health, lifestyle, whether you smoke, how long you want the cover for and, of course, the amount of cover you require. In addition, critical illness insurers will look at your family medical history when assessing your application.

Premiums and cover vary from insurer to insurer, so it is important to check the whole market to find the company that offers the best terms for you.

Guaranteed premium rates

Many critical illness policies offer guaranteed premium rates, which means that, unless you change the policy, the premium you pay will remain the same throughout the term of the policy.

Although guaranteed premium rates are more expensive than reviewable rates, they provide certainty that the cost of the insurance is not going to increase, unless you change the policy.

Reviewable premium rates

Some policies entail premium rates that are reviewable, which means the insurer will review your premiums every five years, although some review premiums more frequently.

IMPORTANT

It is important that you read the terms and conditions of the policy and that you understand the basis on which the insurer can review your premiums.