Critical Illness Insurance
What is critical illness insurance?
Critical illness insurance provides cover for a range of serious illnesses that are commonly terminal or result in a high loss of standards of living such as cancer, kidney failure or stroke.
It can provide a lump-sum payment or an ongoing annual income in the event of such illnesses.
Most providers cover a standard range of conditions set out by the ABI known as core conditions, while some insurers may cover several less common conditions too.
Critical illness insurance can be arranged as a stand-alone cover or as part of a life insurance policy, decreasing term, level term, or mortgage life insurance policy.
The cover will normally be arranged to pay a lump sum benefit which you can choose either based on the amount of cover required or on the premium you are willing to pay.
Combined with life or independent
If the policy is life and critical illness cover combined it will only payout on the first event, meaning a valid life claim on a joint policy would leave the survivor with no critical illness cover.
This arrangement is cheaper but leaves potential shortfalls in particular for a family with children or a couple with only one income.
Decreasing, level or increasing cover
Decreasing cover gradually reduces and is designed mainly to cover the balance of a repayment mortgage although the money could be used for anything in the event of a claim unless it is assigned to the lender.
Level cover pays a fixed lump sum that will not change through the term of the policy.
Increasing cover has a potential payout that rises throughout the term, either on a fixed basis, for example, 5% per annum, or perhaps in-line with inflation.
This is the age that the policy will cover you until and is usually limited to a certain age such as 65 or 70.
The longer the term the higher the premium is likely to be as the risk is greater the older you are.
Therefore it is often more cost-effective to arrange cover when young rather than waiting until later in life.
Lump sum or income
You can usually choose either to receive a lump-sum payment, to cover a mortgage for example, or to receive an ongoing income to the end of the term.
Definition of Disability
If the definition of disability provided is on an 'own occupation' basis, it means that if you were permanently unable, through injury or illness, to perform your occupation as listed on the policy, then the cover would pay out under total permanent disability.
However, if an 'own occupation' basis is not supplied, then total permanent disability may only be considered where you cannot perform a role with similar earnings, or if you cannot perform everyday tasks, depending on the insurer's terms.
This can be a significant difference, so care and advice are needed in this area.
The cover may be arranged on a guaranteed or reviewable basis.
Guaranteed means the premium will not change at all during the term of the plan but reviewable premiums may be subject to changes based on the insurer's claims experience, typically once every five years.
Waiver of premium
Waiver of premium means you will stop paying the premium for the insurance if you are unable to work due to illness or injury, in effect income protection for the payment of a premium.
Typical life insurance options will usually be available such as joint or single policy, the inclusion of income protection cover, waiver of premiums as well as monthly or annual payments. The option to put the policy in Trust will also be available should this be necessary.