Is it worth taking out critical illness cover alongside your existing life insurance policy? Let’s find out.
Critical illness cover is designed to ensure that you are financially supported in the event that a serious illness leaves you unable to work. And, in unforeseen circumstances, critical illness cover can be very valuable to the policyholder.
Critical illness cover delivers a financial security net. But, is critical illness cover worth the price of the premium for you? Well, that really depends on your personal circumstances.
This explains exactly what critical illness cover is and why it may be worth the investment for you. We’ll also take you through what it covers you for. Scroll on to unveil all.
What is critical illness cover and what’s it for?
Critical illness cover offers financial support if you are diagnosed with one of the severe medical conditions outlined in your policy. The one-off lump-sum payment is designed to pay for any treatment costs as well as any outstanding financial obligations due to loss of income.
If you were to find yourself unable to work due to a long-term illness, many employees assume that their employers will continue to provide at least a percentage of their income.
The reality is that employees are usually switched to Statutory Sick Pay (SSP) within the initial six months. And very few will offer continued support after 12 months.
Anyone thinking about buying critical illness cover should read the fine print in their employment contract. This will clear up any confusion surrounding what financial support you can expect if you end up being off sick long-term.
What is the risk if you don’t have critical illness cover?
Anyone without critical illness cover is at risk of having a serious reduction of income. SSP pays just £109.40 per week (accurate as of April 2023). This small amount is rarely enough to cover financial commitments such as mortgage repayments and utility bills.
Even if you have savings set aside for this type of scenario, the loss of income can leave you unable to cover unavoidable living expenses.
You should also note that if you’re classed as self-employed or a contractor, you are highly unlikely to have any sick pay to fall back on other than SSP.
What’s the average cost of critical illness cover?
Critical illness cover usually comes with a monthly premium ranging anywhere from £7.50 per month right up to £100+ per month. But, as with all types of insurance, a number of components will dictate the price. The below will all have an impact on the cost of your critical illness cover:
In general, the older you are the more expensive your critical illness cover is likely to be.
Overall health. Your family and personal medical history will also affect the price of your critical illness cover. If you have been diagnosed with an underlying health issue, or there is a family history of medical diagnoses, your policy is going to be more expensive. That is, if it’s available at all.
Lifestyle in general. Whether you smoke or not, how much you drink on a weekly basis and how active you are will all impact the overall cost of your critical illness cover.
Other things that impact the cost of an income protection insurance policy include the length of the policy and the level of cover needed. The longer you want a policy to last will ultimately impact the price. As will the level of cover you require, i.e. how much you’ll need the policy to pay out.
What does critical illness cover and what does it pay out for?
Critical illness cover pays out in the event that you are diagnosed with one of the specific medical conditions or injuries outlined in your policy’s terms and conditions. Unlike income protection insurance, it only pays out once. After it has paid out, the policy expires.
The medical conditions and serious illnesses that are covered by your critical illness insurance policy can vary pretty drastically from one insurer to the next. The best and most comprehensive policies offer cover for as many as 50 different conditions or more. Others can be way more restrictive in what they will pay out for.
Critical illnesses that an insurer will usually cover include:
A stroke
A heart attack
Cancer (albeit only certain types and stages)
Multiple sclerosis
Parkinson’s disease
Alzheimer’s disease
A traumatic head injury.
The majority of policies will pay out should you develop any permanent disabilities following an injury or illness.
Some critical illness cover policies will also offer a smaller payout in the event of less severe conditions. And, if one of your children is diagnosed with one of the specified conditions, insurers may also offer a smaller payout in order to support you as you support your dependent.
Is critical illness cover better than income protection insurance?
Income protection insurance is quite different to critical illness insurance. Instead of paying out in a single lump sum, income protection supplements your income for as long as it takes you to be capable of returning to work, until you reach retirement age, until you pass away or the policy expires.
The right option for you or whether to invest in both will depend on a number of different points.
Before choosing to take out critical illness cover, income protection insurance or both, think about the below:
What policy premiums can you afford to work into your monthly budget? Take a closer look at your budget and figure out which is most affordable.
Existing debts. Your mortgage and any other outstanding debts you may have will still need to be paid if you find yourself unable to work. What financial responsibilities will you have regardless of any unforeseen health issues that have the potential to arise?
Monthly outgoings. Are utility bills and food shops largely your responsibility in your household? These are unavoidable expenditures for the majority of households. If you want to ensure that these are covered whatever life throws your way, both income protection insurance and critical illness cover could be the life line you’re searching for.
Your household’s reliance on your income. How important is your income to your family? If you’re the breadwinner or are in an equal-earnings household and the loss of your income would be detrimental, investing in both income protection insurance and critical illness cover could be a smart move.