Life & Critical illness Cover

How does Critical Illness cover work?

It’s easy to think a critical illness isn’t going to happen to you, but should the worst happen you can help make sure your family and loved ones are protected by easing their financial worries. Life Insurance with Critical Illness will pay out if you die or are diagnosed with a critical illness during the term of the policy.

Your cover will be based on how long you want your policy to last, and how much you want to pay each month.

You’ll probably want to make sure that you have cover in place for as long as you still have significant demands on your income, such as an outstanding mortgage or children’s education fees.

The next thing to consider is whether you want level cover or decreasing cover.

• With level cover, you choose a lump sum that meets your needs, and how long you want your cover to run for. You’ll then pay the same amount each month until your policy ends. You might choose this option if you want to help cover general outgoings, any additional health-related costs, and other financial commitments.

  You can choose to make your cover amount increase in line with inflation. This means that your monthly payments may rise, but ensures that the lump sum won’t be worth less in the future because of the rise in the cost of living. 

• With decreasing cover, the value of your cover goes down each month, but what you pay stays the same for the duration of the policy. This option could suit you if you want to cover any debts or loans that you repay monthly, such as a repayment mortgage.

What does critical illness insurance cover?

You’ll find that different insurers cover different things. Most providers cover up to 60 different illnesses.

Everyone’s different and  customers claim for such things as strokes, heart attacks, benign brain tumours, Parkinson’s and multiple sclerosis and varying types of cancer.

How much does critical illness insurance cost?

When you apply for critical illness insurance, you will have provide details of your medical history to an insurer in order to work out what to charge you. 

If you’re in good health, it should be quick and easy to get an idea of the cost of critical illness cover.

The eventual price you pay for your cover will vary, based on a range of factors including your age, health, and lifestyle, as well as how much cover you require.

Can I get critical illness cover if I’ve suffered an illness?

You must tell the truth in your application about any pre-existing conditions – if the insurer finds out later on that you weren’t entirely honest, it could void your entire policy.

Having a pre-existing condition does not mean that you will be unable to find someone that will offer you critical illness insurance.

However, it does mean that any cover you do find is likely to be more expensive, and may have more extensive exclusions than for those people who do not have a history of medical issues.

When does critical illness insurance pay out?

When you make a successful claim on your policy, the money is paid out in a single lump sum.

The exact time taken to make the payment will vary between providers – though processing a claim can take months.

Contact your insurer as soon as you receive the diagnosis so that they can talk you through the claims process and how long it is likely to take before you receive the money.

Will my critical illness payout be taxed?

Payments from a critical illness policy are not classed as income, so you will not have to pay any income tax on the money you receive from your insurer.

Your loved ones could face a potential inheritance tax bill, however. If you take out a joint life insurance and critical illness policy, and make a claim but do not receive the money before passing away, the payout forms part of your estate.

If your estate is valued at more than £325,000, inheritance tax will be charged on the insurance payout.

It is possible to get around this by writing your insurance policy in trust. This is where your policy is held within a trust and so classed as being outside of your estate. 

Who is critical illness cover right for?

While some state benefits are available to help people who fall ill, they are unlikely to stretch very far – at best you may be able to claim around £100 a week.

It’s also worth considering critical illness cover if your employer does not offer much to help employees who develop long-term health issues.

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