10 min Read
11 Jul 2017

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.

More about Damien

How much critical illness cover do you really need?

How much critical illness cover do you really need?

How much critical illness cover do you & your family need?

What is critical illness cover?

Critical illness cover is a long-term insurance policy that pays out a lump sum if you are diagnosed with a critical illness such as cancer, stroke or heart attack during the policy term. The critical illness definition is dependent upon the insurance company providing the critical illness cover however, as explained in the next section, there are a number of conditions that are fairly standard across all critical illness insurance policies. The key point to remember is that a critical illness policy will pay out upon diagnosis, even if you eventually go on to make a full recovery.

Although critical illness cover is a vital part of a family's protection portfolio it should not replace life insurance and is usually offered as an addition to life insurance cover. Read the following article to find out more about life insurance - How much life insurance do you need?

What does critical illness insurance cover?

Critical illness insurance will pay out a lump sum if the policyholder is diagnosed with one of the critical illnesses listed in the policy document. The critical illnesses cover may vary from provider to provider.

The following are some of the critical illnesses covered by the majority of providers:

  • Cancer - excluding less advanced cases
  • Cardiac arrest
  • Heart attack
  • Kidney failure
  • Liver failure
  • Major organ transplant
  • Stroke
  • Traumatic brain injury
  • Motor neurone disease - resulting in permanent symptoms

As an alternative to critical illness insurance there is a new variation called serious illness cover. It works in much the same way as critical illness insurance but the amount paid out by the insurer is dependent upon the severity of the critical illness diagnosed. So the full sum assured will only be paid out in the most severe of cases. However, on the plus side the number of conditions covered by serious illness insurance is significantly higher than a typical critical illness policy. For example Vitality's serious illness policy covers over 170 conditions versus 48 for a traditional critical illness policy.

How much critical illness cover do I need?

Do I need critical illness cover?

If you were diagnosed with a critical illness your life may never be the same again. Apart from the emotional strain for you and your family you will probably have to deal with financial stress as well.

  • Will you still be able to work and earn an income?
  • Will you incur travel expenses to receive treatment?
  • Will you have to make alterations to your home due to your illness?
  • Will you have to employ people to help you do the things that you are no longer able to do?

Having a lump sum from a critical illness cover policy will help with this expenditure while you focus on your treatment and recovery. If you can afford critical illness cover I would always recommend that you consider it. If you can't then you should make sure you have life cover in place first and foremost and then consider income protection insurance.

Working out the amount of critical illness cover you need?

The amount of critical illness cover you will need will depend upon your current debts and other outgoings. Here are a few areas you need to consider when trying to calculate how much critical illness insurance you need.

  • How much mortgage is outstanding?
  • Have you any other debts?
  • Estimate potential medical expenses (e.g. care home)
  • Amount your family will need to live on and pay all the bills
  • Less savings and other assets
  • Less any state benefits you currently receive or may receive in the future

Once you have calculated the above you will have a fairly clear idea of what sort of lump sum you will require for you or your family to continue their current lifestyle if you were diagnosed with a critical illness. Broadly speaking a good starting point is to aim for a lump sum that is equivalent to your level of life cover. However, that may prove expensive so you can then reduce the level of critical illness cover so that it is affordable (see the case study below). Some critical illness cover is better than none at all. Also think how you and your family would cope if your partner developed a critical illness. Don't just focus on yourself, consider a joint critical illness policy with your spouse and even your children.

How much is critical illness cover?

The cost of critical illness cover will depend on the level of benefits chosen, your age and medical history. Often critical illness cover is added to life insurance in a policy that provides life insurance cover and critical illness cover with a payment made on death or the diagnosis of a critical illness. Usually if you are diagnosed with a critical illness the policy will pay out and the life insurance cover will cease. You can opt to have the policy set up so that the life insurance cover continues but this will be more expensive.

The cost of £100,000 of life and critical illness cover for a 30 year old individual in good health and a non-smoker for a period of 20 years will be in the region of £25 per month. This is likely to increase to around £45 pm at age 40 and just over £100 pm at age 50. As you can see it makes great sense to get critical illness cover as soon as possible as the premiums will be more affordable.

Compare critical illness cover & case study

If you are considering critical illness then it makes sense to compare the policies offered by various providers as they vary in the benefits provided and the cost of the monthly premiums. It is important to not just rely on a price comparison site. The price you will see almost certainly won't be the price you end up paying once the insurer takes into account your health and personal circumstances.

By way of example I was personally looking to take out a £200,000 life insurance policy with critical illness cover. I was well aware that the price quoted by the well-known price comparison sites would not be offered to me due to my medical history. Generally speaking I am very healthy although I have a pre-existing medical condition. By running a price comparison but then speaking to an insurance adviser I was able to secure a £200,000 life insurance policy with a lower level of serious illness cover (and with my pre-existing medical condition excluded) all within my budget while at the same time providing cover for wife and two children on the same policy. On top of that the policy offered generous rewards including 40% off gym membership and free cinema tickets and Starbucks coffee each week. While the latter was not instrumental in my decision it is a nice bonus. The point is that most people would have given up on considering critical illness cover when in fact there are some great options out there. The adviser was also able to provide advice on the level of critical illness cover I would need.

The key is talk to those with the relevant expertise in the area. I therefore strongly recommend that you:

  1. Compare the best critical illness cover using this comparison tool.
  2. Make sure you input your correct contact details so that the company can check the market for you and call you to offer advice if required. The call is free, as is the advice and there is no obligation to do anything. However, they will tell you which critical illness cover is best for you and your budget.