Critical illness insurance is designed to offer a financial safety net should you become seriously ill. As long as you are up to date with your premiums you will receive a lump sum should you be diagnosed with a specified critical illness during the term of the policy. Most people who take out critical illness cover do so until their mortgage is paid off, or their children become financially independent.
For example, you may decide to take out a policy until your mortgage is paid off. Even if you are single and have no dependants a mortgage is a long term commitment, and, for the majority of us, is our largest outgoing. Critical illness cover ensures that your mortgage would be paid off should you become seriously ill and unable to work (some mortgage providers even insist that you have it). Similarly, if you have children you may want to ensure that you are still able to provide for their needs should you become unfit for work.
If you and your dependants reply heavily on your salary then critical illness insurance could be a good choice. The cost of premiums varies due to a number of different factors so you will need to weigh up the benefits of receiving a large payout against the impact of your premiums on your monthly income. Critical illness insurance is not suitable for you if you have no significant monthly outgoings, or no dependants.
The majority of critical illness policies pay out the full amount irrespective of how severe your illness is as long as the condition is listed in their terms and conditions. However, some insurers do offer cover that is based upon the severity of your illness. When calculating how much cover you require you need to first work out how much money you would lose on a monthly basis if you were to become too ill to work. Then you need to calculate the full cost of your regular monthly outgoings. Calculators are available online that make the process of working out how much cover you need much simpler, or, alternatively, you can hire the services of an independent advisor who will work out exactly how much cover you require, and get you the best deal.
Only certain illnesses are covered by a critical illness insurance policy. These illnesses vary between providers but most include heart attacks, certain types of cancer, and strokes. In addition to these conditions are major organ transplants, deafness, Bacterial Meningitis, and Parkinson’s Disease, but be sure to check the small print as terms and condition can vary considerably.
When you apply to take out critical illness cover you will be asked to provide details about your medical history. It is important that the information you provide at this stage is entirely accurate as any omissions could result in your claim being rejected at a later date.
Critical illness insurance received a bad press a number of years ago as insurers were reluctant to pay out, and many claims were rejected due to ambiguous clauses in their policies. However, insurers have now cleaned up their act and most report that, on average, nine out of ten claims are now successful. Initially, many critical illness policies only included around ten conditions; this figure has now been increased to between forty and fifty so you are far more likely to be able to make a successful claim.
Around two thirds of claims are made due to cancer, closely followed by claims for heart attacks, strokes, and Multiple Sclerosis. Although insurers now include far more illnesses in their policy terms and conditions their definitions of what constitutes a particular condition are still tight.
When determining whether you would really benefit from critical illness insurance you should check which benefits, if any, you have as part of your employee benefits package. Some employers provide their employees with life cover which pays out in the event of your death, but critical illness cover is less common. Bear in mind that you are six times more likely to claim on a critical illness policy than a life insurance policy. In addition, when deciding whether critical illness cover is the right choice for you ask yourself what you plan to use the money for. If the answer is to pay off your debts, or perhaps go part-time, then critical illness cover could be a good fit. However, if, you decide that you want to use your payout to pay for private medical care then a health insurance policy could prove more useful.
Although far more claims are now accepted than they were a number of years ago, some claims are still rejected. The two most common reasons that claims are rejected are that the policyholder omitted to inform their insurer about previous medical conditions, and that they did not meet the exact definitions covered by the policy.
Critical illness insurance can be a great way of ensuring that your financial obligations will continue to be met should you become seriously ill. However, policy terms and conditions can be complex, and vary considerably between providers, so you may want to seek independent advice either via an insurance broker, or independent financial advisor before you commit to taking out a policy.