Critical Illness Protection
| Estimated Probability of Suffering Common Critical Illnesses |
|
by age 45 |
by age 55 |
by age 65 |
| Cancer - Male |
1 in 67 |
1 in 21 |
1 in 7 |
| Cancer - Female |
1 in 37 |
1 in 13 |
1 in 6 |
| Heart Attack - Male |
1 in 167 |
1 in 48 |
1 in 16 |
| Heart Attack - Female |
1 in 1,000 |
1 in 143 |
1 in 63 |
| Stroke - Male |
1 in 200 |
1 in 83 |
1 in 33 |
| Stroke - Female |
1 in 250 |
1 in 111 |
1 in 43 |
| Source: Candid Money: Cancer estimates calculated using ONS Cancer Registration Statistics 2006, Heart Attack/Stroke estimates calculated using data from The British Heart Foundation. |
What is it?
It's an insurance that provides a tax-fee sum of money if you become critically ill, e.g. suffer a heart attack, cancer or stroke. You normally need to survive at least one month before an insurer pays out, although critical illness insurance is often packaged together with life insurance to ensure a payout whatever the outcome.
Do I need it?
The likelihood that you'll need to claim on a critical illness policy is higher than a life insurance policy, so it could be viewed as more important.
If you already have income protection and life cover then buying critical illness insurance might be overkill. If not, then consider how suffering from such as illness could affect your ability to pay monthly outgoings if it leaves you unable to work.
It helps to know where you stand regarding sick pay. Check with your employer to see what you would be entitled to, if anything, above Statutory Sick Pay and read more about the state benefits in the Candid Money Income Protection section.
What's covered?
Although cover for specific types of illness varies between policies, the bare minimum should be the three biggest risks:
- Cancer – accounts for around a half of all critical illness claims.
- Heart attack - accounts for around 10% of claims.
- Stroke - accounts for around 7% of claims.
What's key is how an insurer defines a specific illness. For example, if you suffer from cancer or a heart attack, how serious does it have to be before you get a payout?
In a bid to standardise this the Association of British Insurers (ABI) has published a list of standard definitions, called 'Model Definitions', that it encourages insurers to
adopt. This makes it easier to compare policies from different insurers and find out exactly what will be covered.
The ABI Model Definitions cover the following illnesses. The ABI's summary definition is shown, you can view the full definitions on the ABI website.
| Illness |
ABI Summary Definition |
| Alzheimer’s Disease |
Before a specified age (usually 60 or 65) resulting in permanent symptoms. |
| Aorta Graft Surgery |
For disease. |
| Benign Brain Tumour |
Resulting in permanent symptoms. |
| Blindness |
Permanent and irreversible. |
| Cancer |
Excluding less advanced cases. |
| Coma |
Resulting in permanent symptoms. |
| Coronary Artery by-pass Grafts |
With surgery to divide the breastbone. |
| Deafness |
Permanent and irreversible. |
| Heart Attack |
Of permanent severity. |
| Heart Valve Replacement or Repair |
With surgery to divide the breastbone. |
| HIV Infection |
Caught in the UK from a blood transfusion, a physical assault or at work in an eligible occupation. |
| Kidney Failure |
Requiring dialysis. |
| Loss of Speech |
Permanent and irreversible. |
| Loss of Hands or Feet |
Permanent physical severance. |
| Major organ transplant |
|
| Motor Neurone Disease |
Before a specified age and resulting in permanent symptoms. |
| Multiple Sclerosis |
With persisting symptoms. |
| Paralysis of Limbs |
Total and irreversible. |
| Parkinson’s Disease |
Before a specified age and resulting in permanent symptoms. |
| Stroke |
Resulting in permanent symptoms. |
| Terminal illness |
|
| Third Degree Burns |
Covering 20% of the body’s surface area. |
| Traumatic Head Injury |
Resulting in permanent symptoms. |
What's not covered?
Beware that policies do not payout under certain circumstances. These vary from policy to policy but the most common circumstances include:
- Health problems you had before taking the policy out, known as 'pre-existing medical conditions'.
- Living outside the EU for more than 13 consecutive weeks in any 12 months.
- Problems arising from alcohol or drug abuse.
- Taking part in dangerous sports or other activities (including flying) which you failed to disclose when buying the policy.
- Self-inflicted injury.
- Taking part in a criminal act.
- HIV/AIDs.
- War and civil commotion.
- Unreasonable failure to follow medical advice.
How much cover?
This is difficult as it's anyone's guess how long you could be off work if you suffer from a critical illness. As a starting point you could work out how much you'd need to
cover ongoing bills and living costs for five years then see how affordable the premiums for that level of cover are.
Ultimately, the cost of the premiums will probably dictate the level of cover you choose. Critical illness insurance has shot up in price over the last few years and will
probably continue to do so - advances in medical technology mean it's increasingly likely you could survive a critical illness, hence receive a payout from the policy.
Most providers tend to limit the maximum level of cover at £250,000 - £500,000.
How long do I need cover for?
For most people cover until retirement is wise, in order to help protect you from lost earnings. You can simply cancel the policy before then if you feel cover
is no longer required.
What affects cost?
The cost of a critical illness policy tends to be most affected by the following:
AgeSexHealthFamily HistorySmokingOccupation/Hobbies
The older you are the more likely you'll claim during the policy term, hence higher premiums.
Premiums tend to be higher for women because history suggests they are more likely to make a clam.
If you suffer from health problems and/or are overweight your premiums might be higher than normal.
If you have a history of medical problems in your family, e.g. heart disease or cancer, your premiums might increase.
Premiums for smokers are normally higher than those of non-smokers.
If you have a dangerous occupation or hobby then expect higher premiums. Some insurers might even refuse to insure you.
Underwriting
When you complete a critical illness application form you normally have to provide details of your health and family health history. The insurance company will then decide
whether to insure you and, if so, whether to increase your premium from a normal level. This process is known as 'underwriting'.
As part of the underwriting process the insurance company might require you to see or speak to a doctor or nurse to gather further information.
Some insurers have a level of cover, called a 'free cover limit', below which no underwriting is required, so you don't need to provide any details about your health. This
is especially common in 'group' income protection schemes offered via employers.
Ways to buy critical illness protection
Critical illness policies can usually be purchased either attached to term assurance (life cover) or as a separate policy.
InsurerFinancial AdviserDiscount Broker
Buying an income protection policy direct from an insurer is unlikely to be any cheaper than using a discount broker and might be more expensive.
If you buy a critical illness policy through a financial adviser they'll charge you a fee for their advcie.
Critical illness is fairly straightforward provided you understand exactly what's covered. Using an adviser would be worthwhile if you don't feel confident choosing a
policy yourself.
Usually the most cost effective option if you know what you're doing. If you're comfortable choosing a policy and understand what is and isn't covered then using a discount
broker should earn you either a nice commission rebate or a discounted premium.
To find out more about commissions and how they work, read the Candid Money guide to financial advice here.
Critical Illness Insurance Jargon
Here's some of the more common critical illness insurance jargon you might come across:
| ABI Model Definitions | A list produced by the Association of British Insurers that aims to standardise what is meant by 'critical' when applied to a specific illness. |
| All Risks | Contents insurance with all risks covers possessions such as a laptop or watches when taken outside the home. |
| Building Insurance | Insurance that intends to provide sufficient cover to totally rebuild your home if necessary. |
| Contents Insurance | Insurance that covers items that are not a fixed part of your home, e.g. TV, from damage or theft. |
| Convertible Term Assurance | A type of term assurance that allows you to convert into a whole of life policy. |
| Debt Payment Protection | Insurance that's intended to help you manage your debts if unable to work through illness or injury. |
| Decreasing Term Assurance | A type of term assurance where the sum assured reduces over time, typically linked to a repayment mortgage. |
| Deferment Period | Period of time that you must be unable to work for before you can claim on an income protection policy. The longer the period, the lower the premium is likely to be. |
| Employment & Support Allowance | State benefit intended to pay employees (and potentially the self-employed) unable to work through illness after Statutory Sick Pay ends. |
| Endowment | A type of life insurance policy that is also intended to provide investment returns. They have a very patchy track record. |
| Excess | The amount of an insurance claim you agree to pay before an insurer pays the rest (for example, the first £50 of a claim). |
| Exclusions | Insurance policies often exclude certain risks or events. It's vital you check these before buying a policy. |
| Family Income Benefit | A type of term assurance that pays out a regular tax-free income on death rather than a lump sum. |
| Full Medical Underwriting | When you buy private medical insurance the insurer asks for full details of your medical history and may also contact your doctor for more information. |
| Income Protection | Insurance that pays out a monthly tax-free income if you're unable to work through illness or injury. |
| Increasing Term Assurance | A type of term assurance where the sum assured increases over time, usually inline with inflation. |
| Inpatient Costs | The costs of staying in a private hospital, usually covered by private medical insurance policies. |
| Loss Adjuster | An impartial claims specialist responsible for investigating claims on behalf of insurance companies. |
| Material Fact | Information that would affect an insurance company's willingness to accept a policy, or the premium it would charge. Don't omit these when applying for cover as it could invalidate the policy. |
| Moratorium Underwriting | When you buy private medical insurance the insurer does not require details of your medical history. Any conditions that have existed over the last five years are not usually covered. |
| Outpatient Costs | The costs of private medical care when you're not admitted to hospital. Not always covered by private medical insurance policies. |
| Personal Accident Plans | Insurance that pays out a lump sum in the event you have an accident and suffer a permanent or temporary disability. |
| Premium | The money paid to an insurance company for an insurance policy. |
| Private Medical Insrance | PMI, a type of insurance that pays for you to receive private health care. |
| Statutory Sick Pay | State benefit that pays employees if they're unable to work for at least four days in a row. Lasts for 28 weeks. |
| Sum Insured | The maximum amount an insurance company will pay for a claim. |
| Term Assurance | Simple type of life insurance that offers cover for a fixed period of time for a (usually) fixed monthy premium. |
| Underwriting | The process where an insurance company decides how risky it would be to insure you and how much to charge you for cover, assuming they're prepared to insure you. |
| Whole of Life | A type of life insurance that can run until you die, however old you might be. However, premiums tend to increase over time so it can become very expensive. |