Nobody wants to think about the impact a critical illness might have on you and your family. But it happens – and it can happen to anyone. Critical illness cover is one way of ensuring you have financial protection should the worst-case scenario happen.

What is it?

Put simply, critical illness cover is a protection policy which pays out a lump sum to you and your family should you fall critically ill.

Benefits

Tax-free lump sum: This cash can be used to pay for anything, from everyday expenses and household bills to mortgage payments, childcare and medical costs.

Peace of mind: There are questions surrounding whether this policy is worth it – but its strongest benefit is that it provides you with peace of mind that during a very difficult period you will be able afford to take time off work, secure financial stability for your family, and ensure your medical expenses will be covered and you can afford to look after yourself.

Drawbacks

Cost: High premiums that continue increasing with age and health issues.

Health issues covered: Each provider’s policy deals with a unique variety of critical health issues and disabilities. However none cover every illness – which means serious illnesses are left out of every policy, with most failing to cover all cancers.

Pay-out: Often the sum is only paid out once you become very ill, which can be a while after you are forced to take time off work

Pre-existing health conditions or illnesses that run in the family are also often not covered.

Cash value: The policy has zero cash value unless a claim is made – this means if you get through life without suffering a critical illness, most providers will not pay out anything at any point.

Alternative options

Income Protection Insurance

Income protection insurance provides cover for a longer time period taken off work and often encompasses a wider variety of illnesses than critical illness cover does. It is also paid out in a monthly tax-free sum, giving you a steadier income than the lump of cash provided by a critical illness cover policy.

Employment Benefit Package & State Benefits

An employment benefit package and state benefits can also provide extra income to support you, but often does not amount to enough to pay for both everyday essentials and regular bills of medical expenses and mortgage payments, let alone taking care of a family.

Life Insurance

Life insurance provides financial cover during the period of protection at death. A valid claim after death places a lump sum under the control of family and loved ones (or a valid claimant). Whilst critical illness cover is similar as it only pays out a lump sum when a valid claim is made, unlike life insurance, it does this at the diagnosis of a critical illness with the purpose of reducing the financial impact on you and your family. Lots of providers of life insurance offer critical illness cover as an additional cover for an added cost.

What effects the cost of the premiums?

Unsurprisingly, the cost of critical illness cover premiums depend on the likelihood of you becoming critically ill. This means the older you get, the more it costs. Smoking, living an unhealthy or dangerous lifestyle, and having serious medical issues in your family history also increase the premium costs.

Important questions to ask when seeking out critical illness cover

Ask yourself:

1. Have you got other means of providing for yourself and your family if you suffer a critical illness or disability?
2. Can you afford to pay the premiums for critical illness cover?

Ask the provider:

1. Does this policy cover your illness or disability?
2. How much will you get in the event of a successful claim?
3. How ill or disabled must you be for a successful pay-out?
4. Are any pre-existing medical conditions or historical family health issues covered?

Decision

Asking yourself these questions is a difficult task. Navigating through the abundance of policies amongst the many providers can be even more challenging. Reaching out to a financial adviser is the best way of filtering through all the policies on offer and choosing the right one for you.