Protection - the importance of the right type of cover

In Part 2 of our articles on protection, we looked at Life Assurance; cover that most people are familiar with, but stand alone this still may not provide the right type of cover for many people, particularly families.

In this edition we examine another common insurance - Critical Illness Cover (CIC for short). Not as many arrange this type of cover, yet claims are four times more likely than for life cover.

Critical Illness Cover

Unlike life assurance, these insurance policies are set up to pay out while you are still alive, in the event of a diagnosis of what is termed a ‘critical’ illness. If the insured (and this often includes their children) suffers one of the many illnesses that the insurance company provides cover against, the policy will pay out a tax-free lump sum, subject to the claim being valid.

CIC enables people to continue manage financially post-diagnosis with a serious illness or disability and can help by paying off an outstanding mortgage or debts, financially support the family and pay the bills in the event that a breadwinner is unable to work as a result of the diagnosis. Crucially, it provides a financial cushion during difficult times, enabling you and your family to be looked after when something unthinkable occurs.

A critical illness policy can be taken out on a single or joint-life basis for a sum of money which will be paid out by the insurance company in the event of a claim during a specified timescale (called the term) selected at outset. Cover is provided against a large number of illnesses and conditions such as most cancers, heart attacks, strokes and many forms of permanent disability, but won’t pay out for minor ailments that aren’t potentially life threatening.

Similar to life assurance, your chosen level of cover is established by making regular payments, usually monthly, throughout the tenure of the policy. If payments are ceased for any reason then the cover usually ceases, meaning no payment would be made on subsequent diagnosis.

Should a pay out be made, this will also usually end the policy, so critical illness cover should often be arranged alongside life assurance. If the insured lives longer than the chosen term the policy will usually end without value.

Critical illness cover is widely available and premium levels are generally much higher compared with a stand alone life assurance cover, because the likelihood of a claim is significantly higher - statistically we are more likely to suffer a critical illness during our lifetimes than to die early.

The cost will still generally be dependent upon a person’s age, health, medical history (and family history), cover level and policy term. The number of illnesses covered will vary, but it is not just the number covered that should be assessed. Instead, the definitions are the important factor, as these will determine whether a claim is successful or declined.

Having the foresight to arrange adequate insurance cover early on could make a difference to many individuals and families. Whilst the core conditions and definitions of what will and won’t be covered in the event of a claim can vary, the reality is that those who have suffered a serious illness are unlikely to secure the same level of protection again.

When applying for cover it’s important that all questions are answered truthfully, as failure to disclose material information could result in a claim being declined, or the policy cancelled without refund.

If you already have cover in place, it’s important to ensure that it still provides enough to financially protect your family. If it doesn’t and you plan to arrange a new policy, it’s crucial that you keep the original policy in place until adequate cover has been confirmed. Older policies could be more comprehensive than newer ones too and will often pay out for conditions that newer versions won’t, so it’s important that this is checked out.

Seeking financial advice in this area and by using an Independent Financial Adviser can help you to save time, money and ensure that you arrange the right solutions that protect you and your family against events that we simply can’t control.

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