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Critical illness

What is it?
Critical Illness Cover is a type of insurance policy which, during the term of the policy, is intended to pay out a tax-free cash sum on diagnosis of a specified medical condition. Critical Illness Cover can be taken out on its own, but is often offered as a combined Life Assurance & Critical Illness policy, typically covering an amount equivalent to the size of the person's mortgage.

Policies vary from one to another in terms of the conditions they cover, but most policies will cover some forms of the following:


  • Cancer
  • Coronary artery by-pass surgery
  • Heart attack
  • Kidney failure
  • Major organ transplant
  • Multiple sclerosis
  • Stroke

In addition, and varying from one policy to another, some of these conditions may also be covered:

  • Aorta graft surgery
  • Benign brain tumour
  • Blindness
  • Coma
  • Deafness
  • Heart valve replacement or repair
  • Loss of limbs
  • Loss of speech
  • Motor neurone disease
  • Paralysis/paraplegia
  • Parkinson's disease
  • Terminal illness
  • Third degree burns

Insurance companies may not cover all these critical illnesses but if they do, the company will use the Association of British Insurers model definitions or alternatives that give more cover.

Full details and definitions of the illnesses/conditions covered should be included in the product literature of any policy. The mortgage monkey strongly recommends that you acquaint yourself with that information before commencing a policy of this type.

What will it NOT cover me for?
Critical illness policies usually contain certain exclusions (things which are not covered). Exclusions vary between insurance companies, but these are fairly common:

Pre-existing conditions at the time the policy was taken out
Any critical illness diagnosed within the first 90 days of a policy
Death within 30 days of a critical illness being diagnosed (life insurance will normally cover this instead)
Failure to follow medical advice
Any critical illness arising from or traceable to pregnancy or childbirth
Hazardous sports and pastimes
HIV/AIDS (usually unless as a result of a blood transfusion or rape)
Living abroad (certain countries excepted)
Self-inflicted injury
War & civil commotion

Critical Illness cover may also not be available to everyone, due to occupation, health or family history. However, it may still be possible to take out a policy for basic life assurance without critical illness cover.

Why should I have Critical Illness Cover? 
Think about this - could your current standard of living be maintained if one or other of the incomes coming into a household were to suddenly stop?  

Would you and your family be able to afford to live in that nice house, enjoy a shopping spree at the sales or change your car every couple of years if even 50% of your household's income dried up?

Due to advances in medical treatment nowadays, more and more people are surviving what were once thought to be terminal conditions. That said, not all survivors are able to regain their health enough to go back to work, some may even be left with a permanent disability. 

Types of Critical Illness Cover:
The term or period covered by the policy will often be linked to the term of your mortgage, or you may choose to take out a policy to cover you until a planned retirement date. There are two main types of critical illness cover which basically relate to the sum paid out in event of a claim.

Level

This is where the sum paid out remains constant throughout the term of the policy, ie: it will pay out the same amount in the first year as it would in the last year.

Decreasing

This type of policy would typically be taken out to cover a repayment mortgage. The sum paid out would decrease by a certain amount over the term, usually in line with the reduction in the amount of mortgage outstanding.

What options can I attach to a Critical Illness Cover policy?
Guaranteed Rates - This is where by the monthly premium remains the same throughout the policy term

Reviewable Rates - This is where the policy is reviewed on a regular basis (usually annually) and the premium is revised based on either the sum assured, the applicants age or both.

Waiver of Premium - If you have a long-term disability (not deemed a critical illness by the policy), after a pre-selected period of time (normally 26 weeks) your policy will stay in force without any further payment of your premiums, as long as you meet the Life Companys specified definition of the incapacity.

Renewal Option - Instead of choosing a fixed term for your policy, you can choose to renew it every five or ten years. If you do this, the life office wont require any medical evidence when you renew. This option is particularly useful when you need flexibility about how long cover is to last.

Indexation Option - You can choose to have your benefit amount increased yearly in line with the Retail Prices Index (RPI) to account for the effects of inflation.

Total and Permanent Disability Benefit - This is an add-on benefit which will pay out if you are diagnosed as being totally and permanently disabled. You can normally choose between three definitions of disability:

being unable to work at your normal occupation (NB: this definition is not available for all occupations)
being unable to carry out any occupation
being unable to carry out some of the activities of everyday life

Buyback Option (generally only applies to life cover with critical illness protection) - After a critical illness or permanent disability claim has been paid, your policy would normally be deemed to have run its course. The life buyback option offers you the opportunity, within a year of such a claim, to buy back the same level of life cover as you had before. Please note that this option would not apply if the critical illness in respect of which the claim was made falls within the policy?s definition of terminal illness.

How much will it cost me?
The premium you pay will depend on two main groups of factors:

The Cover Provided

As with most things in life, you get what you pay for! Naturally, the more comprehensive the cover, the more youre likely to pay. In addition, if you decide to go with extras on your policy (eg: waiver of premium) this will add to the cost. Whether you have level or decreasing cover will also affect the premium.

You

The insurance company will take into account many factors about you when calculating your premium. The starting points will be your age, and whether or not youre a smoker. These will be taken into account on the original quotation, and along with the cover provided will form the basis of the providers standard rate (sometimes called ordinary rate). On the application form, you will also be asked as series of questions about your current and past health (including that of your immediate family), your occupation, lifestyle and leisure pursuits. Depending on the responses to these questions and the outcome of any medical examinations and/or tests (if required by the provider), the provider may accept the policy but with an increased premium.

IMPORTANT You would be surprised at how many claims on critical illness policies are rejected because something was not disclosed by the claimant when the policy was applied for! However tempting it might be to omit something from your application, either to avoid paying a higher premium, or because you think it too trivial, The mortgage monkey strongly recommends that you disclose such information if in doubt, DONT leave it out! (If there is information of a very sensitive nature, you do have the option to disclose this in writing directly to the provider, and such information will be treated as confidential.)

Not all forms of cancer and heart disease are covered by a critical illness policy.

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