9 min Read
06 Nov 2016

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

critical illness cover is it worth itMost 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. We often consider what would happen to our families if we were to die prematurely but rarely consider the effects of a critical illness. Critical illness can have a devastating effect on a family, whether it is just paying the bills or extra costs involved in adapting a home or travelling for hospital treatment.

What is critical illness insurance and is it worth it?

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. Critical illness cover should not be confused with income protection insurance as the latter pays out an 'income' in the event of you being unable to work due to sickness or an accident. For more information see my article 'What is the difference between income protection and critical illness insurance?'

So is critical illness cover worth it?

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 critical illness 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 insurance company to insurance 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 a combined life insurance and critical illness 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 critical illness 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. So if you have dependents relying on you for an income then critical illness insurance is worth it.

If you are considering critical illness insurance then you should act now as due to advances in medical technology and an increase in claims (a result of more people surviving critical illnesses) many insurance companies are reviewing their policies. This could result in a reduction of the illnesses covered or an increase in premiums for policies taken out in the future.

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.

How much does critical illness insurance cost?

The cost of the critical illness insurance will depend on a number of factors

  • Age
  • Smoker/non smoker
  • Current health, weight and family medical history
  • Occupation
  • Amount of cover

What is the application process for critical illness cover?

As with all types of insurance you will need to complete 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 worth it?

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 a financial adviser or critical illness specialist. First of all I suggest that you compare critical illness insurance prices online and get a quote. Make sure you enter the level of critical illness and life insurance cover you need in the relevant boxes. We've partnered with a protection specialist to bring you this tool. Should you need any help we've vetted their service and their advisers are experts in their field.

Find the best value critical illness insurance for you

Get an instant critical illness insurance quote in seconds, comparing the whole market

Find the best value critical illness cover
  • When considering critical illness cover always check the policy details carefully making sure you understand the illnesses covered. Remember cheapest is not always best when it comes to critical illness insurance.
  • 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.

I have heard that many critical illness insurance claims are being rejected, is this true?

As you can see from the table below the number of successful claims is very high with main reason for declining being the definition of illnesses.
Company % of CI claims paid
AEGON 93
AVIVA 94
BRIGHT GREY 91
FRIENDS LIFE 90
LEGAL & GENERAL 93
LIVERPOOL VICTORIA 88
SCOTTISH PROVIDENT 91
ZURICH 92

figures supplied by Kevin Carr of Protection Review and relate to 2012

Conclusion: Critical Illness cover – is it worth it?

Critical illness insurance should be considered as a part of your overall financial planning but, due to the high premiums, may not fit within the budget of some. But don’t be put off, some cover is better than no cover and by reducing the sum assured or the term of the policy you can reduce the premium. Always seek independent financial advice or use a specialist protection adviser and check the policy details fully before purchasing.

Article overview

Key points

  • What is critical illness insurance and is it worth it?
    • Critical illness insurance is designed to ease the financial pressures of suffering from a serious illness by paying out a lump sum on diagnosis.
  • 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.
    • Policies can cover a total of 20 or more other conditions.
  • Why should I consider critical illness insurance?
    • If you have dependents relying on you for an income then critical illness insurance is worth it.
    • Think carefully when linking critical illness cover to a mortgage protection policy as the amount covered reduces over time.
  • How much does critical illness insurance cost?
  • What is the application process for critical illness cover?
    • complete a proposal form
    • you may also need to undergo a medical which is a fairly standard procedure for applicants of a certain age or medical condition.

Written by Damien

Damien is one of the most widely quoted money and investment experts in the national press and has made numerous radio & TV appearances. He created MoneytotheMasses.com while working in the City when he became disillusioned with the way the public were left to fend for themselves because they could not afford financial advice.

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