Critical illness cover – your FAQs, answered
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
Critical illness cover can be a powerful addition to an individual’s wider plan for financial protection. Increasingly, people are recognising the potential impact that illness and injury can have on someone’s wealth (e.g. average UK household income fell by £100 per week during the COVID-19 pandemic, due in part to lower income). Yet what role should critical illness cover play in your financial plan?
Below, our Grantham financial advisers offer some answers to commonly-asked questions about critical illness cover in 2023-24. We hope this information is useful to you. To discuss your own family financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
info@casfin.co.uk
What is critical illness cover, exactly?
There is a misconception that critical illness cover is the same as life insurance or income protection. However, life insurance pays out a lump sum upon the policyholder’s death. Critical illness cover tends to pay out a lump sum if the policyholder is diagnosed with a specific medical condition, such as a heart attack or Parkinson’s disease.
Income protection mainly provides a replacement income to the policyholder – not a lump sum – if they are unable to work due to incapacitation (e.g. a sudden serious illness or disability). This type of policy often encompasses a wider definition of illness or injury. For instance, if you have depression or a bad back, an income protection policy may be more likely to pay out compared to a critical illness cover policy.
Do I need critical illness cover?
This depends on your unique financial goals and situation. It can help to ask yourself some important questions. For instance, does anyone depend on you financially (e.g. young children)? What might happen to them if you could suddenly no longer work due to a serious medical condition?
Do you have other savings and assets which could support your household through a prolonged period of time off paid work? If you were diagnosed with a stroke or another condition, could you adapt financially (e.g. by retiring early and living off your pensions)?
By reflecting on your specific objectives and circumstances, and drawing upon professional financial advice, you can gain more clarity about which financial protection measures may be best for you – e.g. life insurance, income protection and/or critical illness cover.
Which conditions are covered by critical illness cover?
At a basic level, most policies will cover a range of cancers, heart attacks and strokes. If you choose a more “premium” type of critical illness cover (which tends to cost more in monthly premiums), you could extend your covered conditions to perhaps 50 or more – such as organ transplants, blindness and deafness.
Some people still ask if COVID-19 (e.g. “long Covid”) is covered by critical illness cover. According to the Association of British Insurers, this is not a specified illness under their guide. Make sure you read the different conditions covered by various insurers before committing to a policy. A financial adviser can help you engage in this process more thoroughly.
What about cancer?
According to Cancer Research UK, 50% of people will get cancer in their lifetime. There are over 100 cancer types and the older we get, the more likely we are to develop one (e.g. breast cancer or prostate cancer). Critical illness cover will probably not cover every type of cancer you could get. However, it can still be a vital policy to help your finances cope if you are diagnosed with certain, “more serious” types. Again, read the fine print carefully when considering different policy options.
How much cover might I need?
You do not necessarily need your lump sum from critical illness cover to be the same as a life insurance policy. In 2022, the average sum paid out after a critical illness cover claim was £66,296. However, you might need more or less depending on your requirements. It is a good idea to consider your existing financial commitments (e.g. your mortgage) and whether these might change in the future.
How might your lifestyle change after a serious medical condition and what might this mean for your finances? We recommend seeking professional advice to “test run” different scenarios involving illnesses and injuries. This can help you to narrow down on a target figure for a lump sum. Bear in mind that your lump sum requirements could change in the future if your financial goals and circumstances evolve.
How much does it cost?
Many factors determine the costs of different critical illness cover policies on the market at a given time. These include your age, personal health (and family health history), the required length of your policy, the amount of cover and which medical conditions you want included in your policy. It is often a good idea to take out a strong policy earlier in life, when you are in better health, as premiums tend to get more expensive as people get older.
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
