How do you find the best life and critical illness cover? We list what to avoid when buying cover. Remember not all policies are equal!
Critical Illness Cover, also known as Critical Illness Insurance, pays out money if you become too ill to work – providing it’s an illness listed on your policy of course! In my opinion, unless you have a huge amount of money in savings, or have a partner who could carry on paying the bills, and keep you all in the manner to which you have become accustomed, then Critical Illness Cover is just as important as taking out a Life Insurance policy. So what are the 4 Mistakes To Avoid When Buying Critical Illness Cover?
1. Don’t Assume That All Policies Are Created Equal!
It’s important to know that when it comes to Critical Illness policies, they are not all the same. There are several different options available to you…
- What Is Covered? – As a rule all Critical Illness policies cover heart attack, stroke, and cancer. Other than that, the conditions that are covered can vary from insurer to insurer, so you’ll have to check what exactly is covered. It’s also worth looking into how severe a condition would need to be before you’ll get a pay out.
- How Is A Critical Illness Defined? – A critical illness is defined as a ‘life-threatening condition’, and when it comes to which illnesses that refers to you’ll find that most insurers agree on the big three:
- Heart Attack – The death of the heart muscle due to obstruction of blood flow, evident by at least three of the following to prove the occurrence of a heart attack: History of typical chest pain, electrocardiographic changes, elevation of cardiac biomarkers, new regional wall motion abnormality.
- Major Cancers – A malignant tumour characterised by the uncontrolled growth of malignant cells with invasion and destruction of normal tissue. This includes cancers such as leukemia, lymphoma and sarcoma.
- Stroke – A cerebrovascular incident including infarction of brain tissue resulting in permanent neurological deficit with persisting clinical symptoms. often excluded is brain damage due to accident or injury, infection or inflammatory disease.
Other conditions classed as critical illnesses include Parkinson’s disease, major organ transplants or a traumatic head injury, and depending on how comprehensive the cover is, some policies include illnesses such as meningitis or deafness or if you’re hospitalised in the intensive care until so it’s worth paying out a little more on a Critical Illness plan for extra peace of mind.
2. Don’t Assume That Buying Critical Illness cover Without Life Insurance Will Be Cheaper
- Critical Illness Cover – A standalone Critical Illness policy will pay out money if you get one of the illnesses listed within that policy. Simple.
- Combined CIC and Life Insurance – This type of cover pays out if you die OR if you get a critical illness. Generally, you’ll only get one payout, so if you have to claim for a critical illness your Life Insurance cover will end. However, it is cheaper than getting two separate policies.
Critical Illness Cover and Life Insurance tend to go hand-in-hand – especially for those with a family or a mortgage – but if you’re thinking that you’ll just get CIC for now because it’ll be cheaper, that’s not always the case. In fact, it can be the same price or cheaper to take out combined Life and Critical Illness insurance over a standalone Critical Illness plan. But why get both?
Look at it like this; if you combine the two types of insurance you are protected either way. If you were to die within the length of your policy, your family will receive a tax-free lump sum towards paying off the mortgage and for funeral costs etc; and, if you become critically ill, you’ll get money to help with bills and expenses etc, so it’s a win-win (apart from being dead or ill, obviously, which isn’t ideal, but you get my drift).
There are savings involved in combining the two, and so aside from the fact that having both means you have all bases covered, buying them as one package will more than likely be cheaper than buying two separate policies.
Although, If you decide to separate the pay outs you can make sure the insurance company pays you if you get critically ill and still also pay out if you die, double bubble!
3. Don’t Forget To Ask About Extra Benefits
Even though these can bump up your monthly premiums, extras on your Critical Illness Policy such as children’s illness benefits, hospital benefit or fracture cover could be well worth the extra!
As with taking out any insurance policy, I would always recommend seeking the advice of a financial advisor before signing your life away. They have access to all of the products on the market, including some that aren’t on price comparison sites, or lesser-known providers, and will be able to help you find a policy that suits your needs.
4. Don’t Confuse Critical Illness Cover With Income Protection
Income Protection replaces your wages if you are off sick. it ensures you can keep up with your living expenses by paying out a monthly tax-free sum of up to 60% of your earnings (before tax) once you come to the end of your deferred period.
Whatever the illness or injury that is keeping you from working, you will be able to claim. The best Income Protection policies pay out long term, meaning that if you were to be so ill or injured that you could never work again, you’ll receive a monthly income all the way up until retirement age.
Also, it’s possible to claim as many times as you need over the life of the policy, up until the age you have chosen that your policy should end.
Critical Illness Cover pays out a one-off tax-free lump sum if you’re diagnosed as critically ill. in order to make a successful claim your critical illness must match one of the critical illnesses on your insurer’s list.
Unlike Income Protection, where the illness or injury can be pretty much anything, with Critical Illness Cover the injury or illness must be ‘critical’ – the three biggest claims on such a policy being cancers, heart attacks and strokes.
This type of policy only pays out once – once you have claimed that’s that.
Because the policy isn’t linked to your earnings you can insure for however much you like, which is why Critical Illness Cover is often used to cover a mortgage, so that there is enough to pay it off if you are diagnosed with a critical condition.
These are the main things to avoid when specifically purchasing Critical Illness Cover, however there are some important things you should know in general when buying insurance, that also apply to Critical Illness Cover.
Fixed Or Reviewable? – A fixed or ‘guaranteed’ premium is where you pay the same amount every month throughout the length of the policy. A lot of people like the security of knowing what they’ll be paying in the future; but this type of policy can be more expensive in the short term.
When the monthly payments are reviewed after a period of time (typically every 5 years), it’s known as a reviewable policy. Initially the monthly premiums on this type of policy are cheaper, but it could rise over time and will be affected by factors such as your age.
Don’t Withhold Information
On average, over 90% of claims made against Critical Illness policies are paid out. But what about those that aren’t? Well, although a small percentage of those might be down to the claimant’s critical illness not meeting the policy’s criteria, more often than not it’s down to non-disclosure.
This means not giving the insurance company information that will affect the terms of your policy – for example not disclosing medical information such as the fact that you suffer with chest pains or back problems, or that there is a family history of a particular medical condition.
Your policy will be issued and the cost of your monthly premiums set based on the information you provide – and although some medical information might result in your having to pay higher premiums, if you don’t disclose something important that plays a part in you becoming ill, and your insurer finds out about it, you won’t receive a pay out. It’s really not worth it just to save a few quid. Well that’s our 4 Mistakes To Avoid When Buying Critical Illness Cover Guide, we hope you find it us useful and refreshing as I found writing it.