Critical illness insurance – what is it, and is it worth having?

Most people imagine that a serious illness only happens to other people. However the true picture is quite different – 25% of women and 20% of men will suffer from cancer or a heart attack before they reach retirement age.

Critical illness insurance is designed to ease the financial pressures of suffering from a serious illness by paying out a lump sum on diagnosis. Normally the policyholder must survive one month before the policy will pay out.

So what is covered under a critical illness policy?

All policies should cover seven core conditions – cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis or stroke. In addition to this most policies will pay out if the policyholder becomes permanently disabled due to injury or illness.

In addition policies can cover a total of 20 or more other conditions,, but this varies from company to company so you will need to check the details carefully.

Often critical illness cover can be added to a life insurance policy where payment is made on either diagnosis of a critical illness or death, which ever is sooner. With this type of policy the premiums would be cheaper than two separate policies as there is only ever one lump sum paid out by the insurance company.

Normally cover is available for people between the ages of 17 and 70.

Why should I consider critical illness insurance?

Most people feel that life insurance will cover the needs of their family if they should die prematurely, but suffering from a critical illness or long term disability can be just as devastating financially. You probably will not be able to carry on work, with the subsequent loss of income, or have to outlay a substantial amount of money to have alterations made to your home if you become disabled.

If you are considering critical illness insurance then you should act now as due to advances in medical technology and an increase in claims many insurance companies are reviewing their policies. This could result in a reduction of the illnesses covered or an increase in premium.

Also, I would think carefully when linking critical illness cover to a mortgage protection policy as the amount covered reduces over time. This would leave you with little or no critical illnesses cover at a time when you are most likely to suffer.

What is the application process for critical illness cover?

As with all types of insurance you will need to compete a proposal form which will ask if any members of your family have suffered from any serious illnesses. If they have then your policy may be rated, meaning that you will pay a higher premium to be covered for certain illnesses. You may also need to undergo a medical which is a fairly standard procedure for applicants of a certain age or medical condition.

It goes without saying that you should be honest and provide complete information to the insurer when applying for any critical illness insurance. If you do need to claim the insurance company will investigate your medical history fully in a bid to uncover any undisclosed information.

Is critical illness insurance good value for money?

I guess, as with any insurance, if you need to claim then the policy has been good value. I would point out, however, that critical illness insurance is rather expensive - £100k of life insurance for a male non-smoker aged  35 would cost £7.50 pm for a 20 year term, whereas the same level of critical illness cover would cost £28 per month for a 20 year term.

The above figures assume that you are accepted at ordinary rates and have no illnesses excluded.

Are there any things I need to be aware of  when considering critical illness insurance?

• There are over 200 versions of critical illness cover available which can vary widely so obtaining advice from an independent financial adviser is recommended
• Always check the policy details carefully making sure you understand the illnesses covered
• Ensure you understand what constitutes a claim in regard of  both seriousness of the illness and the extent of any disability
• Check whether the premiums are fixed or are reviewable by insurance company after a few years