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A complete guide to critical illness cover

critical illness cover

Critical illness cover is often bought alongside a life insurance policy to provide financial support if you were to suffer from a serious illness such as a heart attack, cancer or a stroke. The policy pays out a lump sum payment to individuals after being diagnosed with a critical illness. The money is then used to cover any loss of income or pay for specialist treatment. A critical illness policy can be bought as a standalone policy or it can be added to your life insurance policy.

Who needs critical illness cover?

Critical illness is designed for people who may not have significant savings and may not be able to financially support themselves if they were unable to work due to illness. Being diagnosed with a critical illness could mean a long recovery time. Statutory sick pay may not always provide the funds needed to cover your bills. When you become ill, you may not be able to pay for your mortgage or other outgoings. A critical illness policy could provide the money needed to get by. It could also cover specialist treatment that you may not otherwise be able to afford.

Here are some important things you need to know:

Critical illness is treated fairly similarly to life insurance when determining the cost

Much like your life insurance policy, your critical illness premiums will increase the older you become. Similarly, if any medical disclosures are revealed it could increase the price or place an exclusion on the policy. Smokers pay more for their premiums too. You are measured for the level of risk you pose to the insurance provider to pay out.

With critical illness, it is quite common for the premiums to be more expensive than life insurance. This is due to the fact that you’re more likely to develop a critical illness, so the risk is higher.

Each insurance provider has different specified conditions

Each provider has to adhere to the ABI’s minimum standards for critical illness cover. This guide sets out a minimum definition of the three core conditions that must be included in a critical illness policy. These are cancer, heart attack and a stroke. The ABI’s guide then provides minimum definitions for further conditions which a provider may wish include in their policy.

On top of that, insurance providers have their own definitions of specified conditions and the terms on which they will pay out. They will meet the minimum standards of the conditions but each policy may vary based on the severity of the illness. Serious illnesses such as Alzheimer’s, loss of limbs, blindness and deafness are usually provided too.

When choosing your insurance provider, it may be worth reading the small print to see what you will be covered for. With critical illness cover, it’s not always worth choosing the cheapest provider but one that provides the most comprehensive cover.

You only need medical underwriting above £250,000

Although you will be asked about your health and lifestyle included your medical history, if you are obtaining a policy at £250,000 or under, you will not be required to get a medical check. If you do have any previous medical declarations, you should expect them to be excluded in your policy. Depending on the severity of it, it may only be for a short period of time such as 2 to 5 years, or it may be for the duration of the policy.

Different insurance providers pay out at different times

Some insurance providers will pay on a critical illness insurance claim from the date you get diagnosed. However, other providers may have a set period of time before they will pay out. This period of time differs between providers and is based on the policy terms, but it is typically around 14 to 28 days before the claim will be payable. It is important that you understand this before obtaining the policy, so you know as soon as it is possible to make a claim.

dad and daughter

Critical illness cover is not an allowable expense

Whilst it is beneficial to have a tax-efficient life insurance policy, critical illness doesn’t usually fall into this bracket. If an employer pays for the premiums, critical illness is classed as a P11D benefit for the employee. It also requires national insurance contributions to be paid.

Often our customers ask about a relevant life and critical illness policy. This was offered by Aviva but now has been changed to a relevant life and significant illness policy. It is a tax-efficient product but there are certain terms and rules applied in order to obtain tax-efficiency on your product. The main change is that you will have to retire from your current role due to the serious illness in order to be eligible for tax relief. Despite this, in both cases, the payout of a critical illness policy is normally tax-free.

When it comes to the taxation of your life insurance and critical illness cover, it’s always best to check with your local tax inspector regarding your individual circumstances.

Splitting your life insurance and critical illness cover

In some cases, you may be able to put your life and critical illness cover into a split trust. A split trust separates out the different types of cover within a single policy. It is designed so that you can take your critical illness cover when diagnosed with a specified condition and leave the life cover held in the trust.

A split trust can only be utilised if the amount of life cover included in the policy is less than or the same as the amount of critical illness cover. It ensures that you can receive two payouts so that you still have money going to your beneficiaries after you pass away.

You can obtain critical illness cover for your children

You are able to add your children onto your critical illness policy. When your children are sick, you may need to take time off work to care for them. In addition to this, transportation to and from the hospital or specialist treatment can cost. Children’s critical illness can help cover these costs. It can give you peace of mind that your children are receiving the best care without worrying about finances. Most providers make it really simple to add your children onto your policy at great rates. You could receive up to £25,000 if your child is diagnosed with one of the specified diseases in the policy.

If you’re interested in getting a quote on your critical illness policy, please do not hesitate to get in touch. This type of policy can really help to make a difference financially during an already difficult time.


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