How much critical illness cover do you need?
- The cost of your mortgage or rent
- How much you need to cover your financial commitments, such as rent, bills and other debt repayments
- Your lifestyle and spending habits (for example, if you have a designer handbag habit)
- Any family financial commitments (for example, if your partner is a stay-at-home parent and wouldn’t be able to work if you were unable to)
- Your standard of living: what do you want your life to look like? For example, do you want to continue with the same amount of holidays and leisure activities? What about big events in the future, like weddings or long-awaited home improvements?
- How much money you already have in savings or investments
What is critical illness cover?
Critical illness cover is different from life insurance. It pays out a lump sum (usually between £10,000 and £200,000) if you are diagnosed with a serious critical illness such as cancer or stroke. A life insurance policy will pay out an agreed amount of money to your dependents after you die, while critical illness cover will provide you with financial protection in the event that you become seriously ill.
Critical illness cover works similar to standard health insurance: You pay a monthly premium to insure yourself against illnesses that may leave you unable to work. If there comes a time when you have been diagnosed with one of the illnesses or conditions covered by your policy, then your insurer will make the payment indicated in your policy terms and conditions.
The number of illnesses covered varies depending on what kind of policy you have taken out. While most insurance providers offer comprehensive policies which cover illnesses like heart attack and stroke, some providers (such as Bupa) offer more affordable policies with lower premiums but fewer illnesses covered.
The most common types of critical illness covered by insurers are:
- Heart attacks
- Strokes
- Cancer (including breast cancer, cervical cancer, childhood cancer and other forms of tumours)
Do you need critical illness cover?
The answer to this question will depend on your own circumstances. You may want to consider getting critical illness cover if:
You can’t afford the premiums for life insurance, but you’d like to leave some money behind for your loved ones in case you’re diagnosed with a serious illness.
You have existing medical conditions. In this case, it might be easier to get critical illness cover compared with life insurance.
You have a family history of cancer or heart disease, so you’re at higher risk of being diagnosed with one of these illnesses yourself.
What is the payout amount of a critical illness policy?
The payout amount is the most important part of a critical illness policy. It is the amount that will be paid out to you or your family if you suffer from a qualifying illness. This can help you and your family to keep living life as normal as possible when times are tough, with some money coming in each month to pay for bills, mortgages, home adaptations and other costs.
The payout amount is set when the policy is taken out, so it’s important to think about what sort of cover you need before approaching an insurance bank. It’s usually advisable to take out critical illness cover worth at least five years’ earnings — but this can vary depending on your circumstances and what kind of lifestyle you’d like to maintain after being diagnosed with an illness. It’s not uncommon for people in the UK today to require more than £100,000 in order to live comfortably after a diagnosis (or at least sustain their current standard of living), but why stop there? There are plenty of cases where people have been happy with less critical illness cover — and plenty more where they’ve rued their lack of foresight!
How much will a critical illness cost me?
The cost of your premiums will depend on your age, health and the level of cover you require. Insurers will also charge more for certain types of illnesses, such as diabetes or heart disease. Some occupations are also seen as higher risk and can attract additional loading – for example airline pilots and police officers.
You can also choose to be covered for a wider range of illnesses than the 20 or so that make up the standard ABI definition. This is sometimes known as “specimen policy” and can cost as much as 20% more than a standard plan.
Is there any way to reduce the cost of my critical illness premium without reducing the level of protection?
Although you can’t change your age, gender or state of health, there are a number of things that you might be able to do to reduce the cost of your critical illness premium without reducing the level of protection.
- Reduce the term. This is the number of years for which you’re covered by your policy. So consider whether you actually need cover for as long as you originally decided on.
- Increase the excess. You can usually specify an excess with a critical illness policy – this is the amount that’s deducted from any amount paid out during a claim – so increasing it will lower your premiums. But make sure that it’s still affordable when setting up your policy.
- Take out a joint policy with someone else, like your partner or relative (assuming they’re in good health). As well as being cheaper than two individual policies, having joint cover means that if one person makes a claim (and survives), then both people will no longer be covered by the policy and don’t have to pay any more premiums after this point (although it’s worth noting that insurers don’t always offer joint life/joint critical illness policies).
- Pay annually rather than monthly – paying upfront instead of in regular installments may work out cheaper overall.
- Switch provider – comparing quotes from different critical illness providers will give you an idea about how much you could save by switching when your current deal ends.
Is it worth having critical illness cover with life insurance?
If you’ve decided to take out critical illness cover and life insurance, then it’s likely that you only need to include a small amount of critical illness with your policy.
Critical illness cover and life insurance are often sold together as a combined policy designed to ensure that your mortgage is paid off in the event of either diagnosis, or death.
If you are diagnosed with a critical illness during the term of your policy then you will receive a lump sum pay-out, which is tax-free (see above). This means that you can use this money however you wish, but many people choose to keep up mortgage repayments when they can no longer work due to an injury or illness. Likewise if you pass away before the end of the term of your policy then it is able to pay out in order for your beneficiaries to clear debt, such as outstanding mortgages.
Critical illness cover protects your finances if you become seriously ill, but if it’s not covered under an existing policy, you should check whether or not it’s worth paying out for.
Critical illness cover is a type of life insurance that will pay out if you are diagnosed with one of a certain number of listed serious illnesses.
It can be bought as an additional or standalone policy, or as part of your life insurance.
How much critical illness cover do you need?
If you have a mortgage, it’s sensible to take out enough critical illness cover to clear the debt and any other loans secured upon your home should you become seriously ill.
With other debts – such as car loans – you could pay off the debt if needed, but would still have the car without further payments. It may therefore not be necessary to include these in your critical illness cover amount.
You will also want enough to cover ongoing costs including mortgage payments, household bills and childcare costs if either you or your partner is unable to work due to serious illness.