Critical Illness Cover

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Critical Illness Cover

Steven Hargreaves explains all about Critical Illness

What is critical illness cover and what is this insurance for?

Critical illness cover is an insurance policy that pays out on the diagnosis of a defined illness. Defined illnesses are things like cancer, heart attack, stroke or renal failure. A policy might cover three or four different critical illnesses or, in some cases, it might cover up to 100 conditions. 

The pay-out is not on death, as it is with life assurance. It’s on diagnosis of the critical illness. So if you were diagnosed with a form of cancer, it would pay out the amount of money you’re insured for. It might even pay your mortgage off. 

You don’t need to die from the illness to receive the money – and with a lot of cancers and illnesses these days there are all sorts of cures and treatments. Cancer is certainly not as onerous as it was 20 or 30 years ago. Survival rates are a lot better and if you recover, you don’t need to pay the money back. 

How does critical illness cover differ from life insurance?

Life assurance is ordinarily quite cheap because life expectancy for a male is around 78-79, and for females it’s 80-81. Critical illness cover is more expensive because, unfortunately, there’s the chance of getting cancer or a critical illness at any age. Before you reach older age, you’re more likely to develop a serious condition than die. 

But you do get what you pay for. If a life event happens and the policy pays out, it will make a tremendous difference. 

Who is critical illness cover for? Is it worth having? 

I’m a big advocate of critical illness cover, because I’ve seen critical illness first hand. My first wife, many years ago now, got breast cancer. Our twin boys were a year old and we’d only just moved to a bigger house. I was in a situation where I had to take time off work to look after my wife and we had two boys in nursery, which was quite expensive. 

We had a successful claim on our critical illness policy, and within just seven or eight weeks of the diagnosis we received the money, which paid off our mortgage in full. It made such a huge difference financially to us. It meant I didn’t have to put the hours in at work to pay the mortgage. It meant I could spend time with my wife and my boys.

I can give you a lot of examples from both a personal perspective and clients over the years that have had a successful critical illness claim. Developing cancer, or having a stroke or heart attack are life changing events that make you reassess everything.

Not having a mortgage is very beneficial in that situation – as it was for us. So I talk to every single one of my clients about it because that’s what insurance is there for – peace of mind.

Can you combine life insurance and critical illness cover?

Yes, and it works well as a combined policy. If we were taking a mortgage together we’d work out how much cover we need, the term, and how much we could pay each month. 

Normally you cover as much as life assurance and critical illness as you can – so in the event of either one of us dying the mortgage is paid off. Equally, if either one of us got a critical illness it pays the mortgage – or, if that doesn’t fit the budget, pays a proportion of the mortgage off. So you can combine life assurance and critical illness and I do that most days with my clients.

How much does critical illness cover cost? 

It varies massively. Younger clients might be paying from £15 to £25 a month for a combined life assurance and critical illness policy. It’s not expensive if you’re in your 20s and a non-smoker. 

Being a smoker affects the cost greatly and as you get older, insurance becomes more expensive. Life assurance is quite cheap, while critical illness cover is more costly in comparison. I’m in my 50s and paying around £200 a month for my critical illness cover. But that gives me a great amount of peace of mind. If I were struggling financially that would be one of the last payments to go, because I want that protection. 

So it can cost £15 a month, it can cost hundreds of pounds a month – it depends on the amount of cover you want, your age, your health and your pastimes.

What else do we need to know when it comes to critical illness cover?

With critical illness covers it’s not a case of finding the cheapest cover. With life assurance you can take the cheapest policy, because it’s only paying out on death. 

With critical illness cover the quality is really important. How many critical illnesses does it pay out on, and what are the definitions of those illnesses? We look at the most benefits you could get with that policy, how many conditions are covered and how they are defined. So we don’t always go for the cheapest.

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