Nobody likes to think about becoming seriously ill, but having a financial plan in place can make a difficult situation much easier to manage. Critical illness protection is designed to provide a lump-sum payment if you are diagnosed with a serious illness covered by your policy.
For many people, this type of insurance can provide valuable financial reassurance at a time when their priorities are focused on recovery rather than money.
But what exactly does critical illness protection cover, how does it work, and is it worth considering?
What is Critical Illness Protection?
Critical illness protection (CIP) is an insurance policy that can pay you a tax-free lump sum if you are diagnosed with a specified serious illness and meet the policy's definition of that condition.
The money can generally be used however you choose. For example, you might use it to:
- Pay your mortgage or rent
- Cover household bills
- Replace lost income
- Pay for medical treatment or rehabilitation
- Make adaptations to your home
- Fund childcare or other essential costs
- Give yourself time away from work
- Maintain your family's standard of living
Unlike some forms of insurance, the payment isn't normally restricted to a particular expense. This means you can decide how the money is used based on your circumstances.
What does Critical Illness Protection cover?
The illnesses covered depend on the insurer and the policy you choose. Common conditions covered by critical illness policies can include:
- Cancer
- Heart attack
- Stroke
- Multiple sclerosis
- Major organ transplant
- Kidney failure
- Coronary artery surgery
- Paralysis
- Permanent disabilities
However, not every policy covers every condition, and the definitions used by insurers can differ significantly.
For example, a policy may cover cancer but only where the cancer meets specific criteria set out in the policy wording. Some less advanced forms of cancer may therefore not qualify for a payout.
This is why it is important to look beyond a policy's list of illnesses and understand the precise definitions and exclusions.
How does Critical Illness Protection work?
When you take out critical illness protection, you choose the amount of cover you want and pay a regular premium.
If you subsequently suffer an illness covered by the policy, you can make a claim. The insurer will assess the claim against the policy's terms and medical definition.
If the claim is accepted, you receive the agreed lump-sum payment.
For example, imagine you have £100,000 of critical illness cover. If you are diagnosed with a qualifying condition and satisfy the policy's definition, the insurer could pay you the £100,000 lump sum.
You could then use that money to help pay your mortgage, cover household expenses or reduce your working hours while you recover.
Why might you need Critical Illness Protection?
A serious illness can have a significant financial impact, even if you have access to treatment through the NHS.
Your income could fall if you are unable to work, while your expenses may increase. You might need to pay for transport, home adaptations, specialist equipment, childcare or other costs.
Savings can help, but they may not be enough to cover a prolonged period away from work.
Critical illness protection can provide an additional financial safety net, particularly if you have significant financial commitments or dependants.
Critical Illness Protection vs Income Protection
Critical illness protection and income protection are sometimes confused, but they serve different purposes.
Critical illness protection generally pays a lump sum following a qualifying diagnosis.
Income protection is designed to replace part of your income if you are unable to work because of illness or injury, subject to the terms of the policy.
This means the two types of cover can potentially complement one another.
For example, a critical illness payout could provide a large amount of money immediately following a diagnosis, while income protection could help replace some of your earnings during a longer period away from work.
The right combination depends on your circumstances, financial commitments and existing employee benefits.
How much Critical Illness Cover do you need?
There isn't a single amount that is right for everyone.
When deciding how much cover you might need, consider your major financial commitments and how your household would cope if you became seriously ill.
You could consider:
- Your outstanding mortgage
- Other debts
- Your annual income
- Household expenditure
- The number of people financially dependent on you
- Your savings
- Your employer's sick pay arrangements
- Existing insurance policies
- Potential additional costs associated with your illness
Some people choose enough cover to repay their mortgage, while others choose a larger amount intended to provide several years of financial support.
What isn't covered?
Critical illness protection does not generally cover every illness or medical condition.
Policies have specific definitions, exclusions and eligibility requirements. Some conditions may only qualify if they reach a particular severity.
Pre-existing medical conditions may also affect whether you can obtain cover and the terms available to you.
Other circumstances, such as certain types of illness or symptoms that don't meet the insurer's definition, may not result in a payout.
Always read the policy documentation carefully, so you understand what is and isn't covered before taking out a policy.
How much does Critical Illness Protection cost?
The cost of critical illness protection varies considerably between individuals and policies.
Insurers may consider factors such as:
- Your age
- Your health
- Your occupation
- Your lifestyle
- Your medical history
- The amount of cover required
- The length of the policy
- The types of conditions covered
- Whether you choose additional options
Generally, the amount and type of cover you select will affect the premium.
It can therefore be worthwhile comparing different policies rather than simply choosing the cheapest available option.
Should you consider Critical Illness Protection?
Critical illness protection can be particularly relevant if your household would struggle financially following a serious diagnosis.
It may be worth considering if you:
- Have a mortgage
- Have children or other financial dependants
- Are self-employed
- Have limited savings
- Would find it difficult to manage without your income
- Have significant financial commitments
- Want additional financial protection alongside other insurance
On the other hand, someone with substantial savings and relatively few financial commitments may have different insurance needs.
There is no universal answer, which is why assessing your individual circumstances is important.
Get advice before taking out cover
Choosing insurance can be complicated, particularly when policies use different definitions, exclusions and levels of cover.
A qualified insurance or financial adviser can help you understand the options available and assess how critical illness protection could fit into your wider financial plans. That's where we come in here at View Finance. Our team of critical illness insurance brokers are always on hand to deliver exceptional advice and guidance when you need it most. We can also set up the best possible product for you and your individual needs.
The most important thing is to choose cover based on your circumstances rather than simply focusing on the premium.
Protecting yourself against the unexpected
Nobody can predict whether they will develop a serious illness, but you can consider how you would cope financially if it happened.
Critical illness protection is designed to provide a lump sum following certain qualifying diagnoses, giving you greater financial flexibility when you may need it most.
For some people, it can form an important part of a wider financial protection strategy alongside savings, life insurance and income protection.
The key is to understand exactly what a policy covers, check its definitions and exclusions, and choose an appropriate level of cover for your circumstances.
