Lee Gathercole and Neezam Romjon talk all about critical illness cover.
What is critical illness cover and what does it do?
Critical illness cover is very similar to life insurance in that it’s paid out in a cash lump sum. It’s a type of insurance that specifically covers certain serious illnesses.
If you were to suffer from a form of cancer, for example, you will receive a cash lump sum. With life insurance your family receives a payout if you were to die, while critical illness is sadly something that’s probably more likely to happen. It covers specific illnesses such as cancer, heart attack etc.
What that policy is designed to do is support you, because you’ll probably stop working and get treatment. Your cash lump sum could be used to pay off your mortgage.
A common misconception with critical illness cover is that you don’t necessarily have to pass away from the condition. You can suffer from an illness, survive it and it and it will still pay out.
Who is critical illness cover for? Is it worth having?
Critical illness cover is for anyone who wants an element of financial protection if they suffer from a critical condition. Let’s give you an example. A homeowner with a mortgage is diagnosed with a critical illness, such as cancer, that keeps them off work for two months.
They might have a really quick recovery – it’s been caught early and they don’t need chemotherapy. They can go back to work.
On the other hand, someone with a form of cancer that is detected a bit later on will require more severe treatment. That might mean they are unable to work for maybe a year or even two years.
Critical illness cover is designed to take away any financial stress in those situations. When you’re diagnosed with a critical illness, your bills don’t stop. You still have a mortgage. You’re still expected to pay it. You’re still expected to pay your council tax, utilities and buy food.
Even travelling to and from the hospital daily or weekly can be expensive, especially if you’re not working. You might not have savings to rely on. Critical illness cover pays you a lump sum to do what you want with. It might be to cover a specific debt, or pay your mortgage so there’s no risk of being repossessed. Then you’re reassured that you’re not going to lose your home and you don’t need to make mortgage payments.
Can you combine life insurance and critical illness cover?
Yes absolutely and they compliment each other, especially as they’re both cash lump sum payments. If you combine them you’re covering yourself for two events there. You’re covering yourself if you pass away – where the payout and cover your family.
But also you’re covering yourself if you suffer from one of the illnesses named on your policy. Most insurers offer what we call a life and critical illness policy. And nine times out of 10 it’s actually more cost effective to have them both together with one insurer.
The simple answer is you can combine the two and this is probably one of the most common joint policies you have, particularly when you’ve got a mortgage.
What costs are involved with critical illness cover?
Cost is the one thing that puts us off insuring everything. I find myself telling every client I speak to, if it was free we would cover every single eventuality. But it’s not free, and everyone knows what they’re happy to spend – so it’s a case of balancing cost versus risk.
In terms of cost, it will depend on your health and your lifestyle and also how much you’re looking to cover yourself for. A £100,000 policy will obviously cost more than a £50,000 policy. It also depends how long you’re looking to take that cover out for – again a 30 year term will cost more than a 10 year term.
It also depends on who you’re applying with. Critical illness cover is a minefield where even advisors will sometimes have to take time to really understand the products. We have regular updates and meetings with insurance providers to make sure we are always up-to-date with the policies, what they cover and what they don’t cover.
You can find skeleton-type policies which cover you for the absolute minimum. But if you claim, you might find it more difficult or even that your critical illness needs to be of a certain severity before you receive the payout. At the other end of the spectrum, you might pay a higher amount for the premium but find a much longer list of conditions is covered, with other benefits as well.
There are lots of added features you can get with some policies, so budgeting is difficult. It’s going to be different for everyone. So we’ll give you a better idea of the cost and you can go from there. If you want to pay more, we’ll look at that, if you want to pay less, we can advise you on ways of reducing the cost.
How can a mortgage broker help me with critical illness cover?
The biggest tip I can give anyone is to take out critical illness cover when you are young, fit and healthy.
There are policies available where you can lock in the premium at the time you apply. Compare a young and healthy 25 year old, taking the same amount of cover as a less healthy, 55 year old. Even if they’re a non-smoker and they’ve not had any health conditions, the risk to the insurer is obviously much greater.
You’re much more likely to have a critical illness later in life than earlier in life. So take that policy out when you are young and lock that premium in for the long term. That way you’re covered and also avoiding a really expensive premium to get the same level of cover.
A final point is that we often find that clients have policies in place, but they’re not giving them the cover they thought. Going online and buying critical illness cover is a minefield.
There’s all these different terms: reviewable premiums, guaranteed premiums, total permanent disability. There are different policy types and caveats and rules. So get advice on it. What you don’t want to do is go to claim on the policy and find you’re not covered or the claim isn’t valid. So get in touch and we’ll be pleased to review your insurance and advise you if there are any gaps.
Approved by The Openwork Partnership on 21st March 2023.