Critical illness insurance
Critical illness insurance may be right for you if you have ongoing financial commitments, such a mortgage payments, to make.
What it does
Critical illness insurance is a long-term insurance policy designed to pay a lump sum or income on the diagnosis of certain life-threatening or debilitating (but not fatal) conditions such as a heart attack, stroke, certain types/stages of cancer, multiple sclerosis and loss of limbs.
The illnesses covered will be specified in the policy along with any exclusions and limitations – these differ between insurers. Critical illness policies usually only pay out once, so are not a replacement for income. You can use the payout to pay for medical treatment, pay off your mortgage or anything else.
When you might buy it
Many people buy critical illness insurance when they take on a major commitment such as a mortgage. This is something you can discuss with a mortgage adviser.
Otherwise, you can buy it:
- through a financial adviser who advises on critical illness insurance, taking account of your wider financial circumstances; or
- directly from insurance companies.
Not all firms will give you advice about whether it is suitable for you. They should tell you whether they will be offering advice and recommending a policy, or giving you information only. If they only give information, you will need to consider the information they give you and make your own decision as to whether the product is right for your needs, or seek independent financial advice.
Key things to think about
Before you take out cover, here are some things to consider:
- Critical illness insurance pays out if you are diagnosed as suffering from one of the specified illnesses.
- Policy summaries will often set out a list of illnesses covered, but this is only a guide and full details will be in the policy document. This will also set out the criteria that have to be met before the insurer will pay a claim, including defining the level of severity of the illness.
- As an example, in the case of cancer, not all cancers or stages of cancer are covered. And for heart attacks, the insurer will need to have medical evidence of the severity of the condition before paying a claim. So make sure you check which illnesses are covered.
- It does not cover simply any sickness that affects your ability to work – it is specific about which illnesses are covered.
- Some insurers exclude all pre-existing conditions but others will decide on the basis of your personal medical history.
- It differs to other types of protection insurance such as income protection or payment protection, so make sure you understand what it does and whether it is right for you.
- Before you take out the cover, the firm should give you either a Policy Summary or Key Features document. This will set out the key features and benefits, as well as any significant or unusual exclusions or limitations. If you have any queries about these you should ask the salesperson to explain the cover in more detail. This will help you make an informed decision on whether to take out the cover.
- Many insurers now provide a plain English guide to the illnesses covered. Ask the salesperson if they have one that explains the policy they have recommended.
- If the insurer imposes any other conditions, perhaps because of your own or family medical history, you should be told what they are before you take out the policy.
- Detailed policy terms and conditions will be provided in the policy document the insurer will send you after you take out the cover – make sure you read it so that you know what you're covered for.
Taking out critical illness insurance
- It's essential that you give full, honest answers to questions you are asked about both your own and family medical history. Giving incomplete or wrong information could invalidate your policy and any claim you make on it.
- If you are not sure, it is better to mention things. Otherwise you will not be aware of what the policy may or may not pay out until you make a claim.
- Many insurers will allow you to send medical information directly to their Medical Officer, so if you do not want to discuss personal or sensitive information with the sales adviser, ask about this.
- Bear in mind that the premium the salesperson quotes to you is only an estimate. The insurer will confirm the actual premium, and the terms, after it has considered your medical history.
- Make sure you understand what the policy covers, when it will pay out and when it will not.
- Read the documents you are given and ask questions if you don't understand anything.
Cost
- The premiums are typically cheaper the younger you are, but will also depend on your medical history and that of your close family. Some policies may offer to reduce the premium if they exclude a pre-existing condition, such as cancer, while some do not offer reduced premiums for exclusions.
- Some policies will cover more illnesses than others or may offer different benefits, such as waiver of premiums, which may make it more expensive.
- Some policies may be combined with life cover, which may make the critical illness element cheaper.
- Some policies may give you the option of reviewable or guaranteed premiums. Guaranteed premiums are more expensive, but you know payments will remain level throughout the life of the policy. Reviewable premiums may be lower, but prices could rise if, for example, new screening methods result in more claims.
Changing your mortgage and increasing the cover
If you already have critical illness insurance you should think carefully before you cancel your existing policy and take out a new one. You might find that by replacing a policy you lose some of the benefits if you have developed any illnesses since you took out the first policy. This is because, pre-existing conditions may not be covered under the new policy. You may be able to get cheaper cover if you switch to another company but the cover might not meet all of your needs.
So think very carefully before you replace or switch your policy.
Some policies allow you to increase your cover – particularly after lifestyle changes such as marriage, moving home or having children. Ask your insurance company or financial adviser for information.
If you cannot increase the cover under your existing policy you could consider taking out an additional policy just to 'top up' your existing cover.
Cancellation
You can cancel within 30 days of taking out the policy and get your money back – provided you have not made a claim. After the first 30 days, you can still cancel the policy at any time under most contracts, but you may not be entitled to a refund of the premiums you have paid. Your cancellation rights should also be set out in the key policy information.
