What is critical illness insurance?

Critical Illness cover is a type of insurance that pays out a tax-free lump sum if the person covered is diagnosed with a specific medical condition or illness listed in the policy.

It's designed to help support you and your family financially while you deal with your diagnosis – so you can focus on your recovery without worrying how the bills will be paid and to help cover costs of treatment.

What illnesses are covered?

The list is exhaustive and quite comprehensive. The major three illnesses – heart attack, cancer and stroke are covered as well as dozens of other conditions including Alzheimer’s disease, Aorta graft surgery, Aplastic anaemia, Bacterial meningitis, Benign brain tumour, Blindness – and that is just the As and Bs. There are certain conditions that apply to the definition of each illness and their severity so it is important to read the product literature thoroughly to fully understand the illnesses covered.

The difference between Critical Illness Cover and Life Insurance

Stand alone Critical Illness cover usually doesn't pay out if you pass away – so it's not always suitable if you want to make sure your family are provided for after you've gone, for example to repay a mortgage. This is where life insurance comes in, specifically a Term Assurance policy.

Critical Illness and Term Assurance can be provided in the same policy. The sum assured can then be payable in the event of diagnosis of a specified critical illness or alternatively upon the death of the life assured if no claim is made for critical illness. In this way the life assured has the opportunity to benefit from the policy during their lifetime if necessary or provide a legacy for their beneficiary should they not need it.

Other Add-ons

Waiver of premium

Total Disability

Total Permanent Disability

Other Options

You can choose single or joint cover – so your policy can cover either one or two people. If joint cover is selected than you can choose a pay-out on either first or second diagnosis.

Level, increasing or decreasing cover can be selected. If you are covering the liabilities of a repayment mortgage, then decreasing cover may be applicable. If you have an interest only mortgage then level may be more relevant. If you are mindful of the effects of inflation then you may consider increasing cover to be the right choice.

Key3

EFPG has access to a product called Key3 that provides cover for the main three conditions that account for 80% of all Critical Illness claims – heart attacks, strokes and cancer. The monthly costs are lower than for full Critical Illness cover.

Conclusion

We have attempted to make the text above as accessible as possible by not using jargon. However, with the various options and add-ons the cover is not straightforward. EFPG considers that advice from a regulated adviser should be sought when considering Critical Illness cover. When you take out such cover, it is a long-term arrangement and although the terms of the policy may be changed once it has started, any such changes may be subject to additional underwriting and potentially rejected. If regulated financial advice is received at outset, you should be able to put the correct cover in place from day one and avoid any unplanned exposure to risk in the future.

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