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) specified conditions such as a heart attack, stroke, certain types/stages of cancer, multiple sclerosis and loss of limbs.
The amount of cover you have can be level (fixed amount) or decreasing (reducing over time) and can be linked to commitments like your mortgage. Cover can also often include the costs for treatments such as physiotherapy or counselling that may be needed to return to a normal life after suffering a critical illness.
It is also possible to include critical illness cover and life assurance cover under one policy. This has the potential advantage of being cheaper than taking out life cover with one provider and critical illness with another, but it’s important to check the level of cover you’re getting and, most importantly, finding the right balance between the level of cover and the cost. After all, paying for the cheapest policy you can find and then not being covered when you need to be is more expensive than no cover at all, but, the outcome is the same!
Why do I need critical illness insurance?
Now for some depressing facts… there are around 200,000 hospital episodes attributed to heart attack each year in the UK.* That’s around 1 every 3 minutes. Over 240,000 hospital episodes are attributed to stroke.* 356,860 people were diagnosed with cancer in the UK in 2014**
Not a particularly nice set of facts and figures but you can choose to protect yourself and your family financially because there are various types of critical illness policies that can be recommended to suit your requirements:
The same level of cover is maintained throughout the policy term and can be used in conjunction with an interest only mortgage.
The policy pays out an amount (sum assured) which reduces throughout the term of the plan and is mainly used to protect repayment mortgages.
Family Income Benefit
Family Income Benefit (FIB) provides a tax free regular income which is paid out for the remaining term of the policy if you are diagnosed with one of the critical illnesses covered by the policy. FIB can provide a replacement income and may be index-linked to inflation.
*British Heart Foundation – November 2017
** Cancer Research UK – November 2017