10 things you need to know about critical illness cover
One in four women and one in five men will suffer a serious illness before they reach retirement age. We can all imagine the medical and emotional implications of a dreaded diagnosis, but what about the effect on our finances?
How would your family cope financially if you were seriously ill and unable to work? Even worse, what if your child fell ill and you had to stop working to look after them? Critical illness insurance pays out a lump sum on the diagnosis of a number of serious conditions. It can offer a financial lifeline at a difficult time so it pays to choose a policy with care.
Here are 10 things you should know about critical illness cover...
1. Critical illness policies do not cover every condition
The conditions covered by critical illness policies vary - some cover more than others. However, the bulk of claims are for cancer, heart attacks and multiple sclerosis so it is essential to opt for a policy that includes these conditions.
It is also important to be aware of restrictions. While cover for cancer is included on most policies, it won't necessarily include all types of cancer. Non-invasive cancers or cancers diagnosed in the early stages aren't always classed as a critical illness and may be excluded.
2. Cover can be affordable
We think of critical illness insurance as expensive, but the cost of cover varies according to a number of factors, including your age, sex, health, family history, occupation and whether or not you smoke.
You will normally be asked to complete a detailed medical questionnaire - and in some cases a medical examination will be necessary. The younger and fitter you are, the cheaper the cover.
So if you are thinking of buying critical illness cover, it's best not to delay.
3. Don't forget the kids
As a parent, the thought of your child falling ill doesn't bear thinking about but, unfortunately, it is one of the main reasons to claim on a critical illness policy.
Many policies include cover for children as well - but not all, so look for one that does. Children's cover provides the policyholder (the parent) with a lump sum, typically £25,000. This could be a godsend if you had to stop working to look after your child or make adaptions to your home.
The other benefits critical illness cover can offer parents is access to counselling for your children and also 'best doctor' cover where the insurer will find a doctor who specialises in your child's illness to give you access to the best treatment.
4. The payout is tax free
If you have to make a claim on your policy, you are not liable for tax on the payout. You can also spend the money as you wish.
5. You can buy critical illness cover with life insurance
Many people choose to buy critical illness cover as an add-on to a life insurance policy. It can work out cheaper but bear in mind that the policy will only pay out once. So if you make a critical illness claim, there won't be another payout when you die.
6. You can fix your premiums
Insurers usually offer fixed or guaranteed premiums so that the cost of the policy doesn't increase over time. Fixed premiums are typically more expensive to begin with but often work out cheaper than reviewable premiums in the long run.
7. Policies do not normally cover existing conditions
Most insurance policies will exclude any previous and existing medical conditions. So, if you have been diagnosed with breast cancer, the policy will not cover the cancer or any related condition. Critical illness cover also typically excludes HIV, self-inflicted injuries and any illness caused by the misuse of drugs.
8. The insurer can refuse to pay up if you don't speak up
If you fail to tell the insurer any relevant information about your own health, or the health of your family, you could invalidate the policy. In other words, the insurer could refuse to pay up in the event of a claim. It is essential to be honest and upfront on the application form to avoid this scenario.
9. You don't have to buy critical illness cover from your lender
Most banks and building societies try to sell critical illness cover when you take out a mortgage. But you don't have to buy critical illness insurance - and you certainly don't have to buy it from your lender. In fact, you can often find cheaper cover if you shop around and compare prices.
10. Critical illness insurance does not pay out when you die
Don't confuse critical illness cover with life cover. Life insurance pays out on death, but critical illness only pays out if you survive. Some policies even insist on a survival period, so the policyholder must survive for a certain number of days before a claim can be made.
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