What is Critical Illness Cover?

Although Critical Illness cover is sold by life assurers, there is a big difference when compared with life insurance - you don't have to die to benefit from the Critical Illness insurance policy. This type of cover is designed to pay out either as a lump sum or as a regular income (Family income benefit - FIB) in the event of you suffering from certain types of critical illness or if you have to undergo certain types of surgery.

Critical Illness insurance is designed to help with the extra costs incurred as a result of contracting a particular condition. It is important to note that the policy only pays out if you contract one of a defined list of illnesses specified in your policy. It is important to remember that if you contract an illness which is not covered by your policy you will not receive a payout.  These policies differ in what they cover, so you should always check the policy wording.

Unless you have substantial savings, some form of Critical Illness insurance may well make sense for you, particularly if you have any debt such as a mortgage. How much cover you should have depends on your circumstances. Consider the sums that you might need in the event of contracting a critical illness - being able to pay off the mortgage or making modifications to your home, for example. If you're able to cover the necessary costs incurred from your own or your partner's savings, then critical illness insurance may well be unnecessary and it may be more appropriate to look at covering your income instead.

The size of your insurance premium will depend on your age, health, occupation, whether or not you smoke, the type and amount of cover you need, and how long you need it for. It is important to remember that premiums could also be more expensive if you have a history of a particular illness in your family or the illness may be excluded from the cover. 

• Combined critical illness and life insurance policies
  Some policies will offer critical illness combined with life insurance. Again, care needs to be taken, as once the policy has paid out cover will no longer be available-in other words if the policy pays out for a critical illness then there will be no life cover remaining. Furthermore, if the illness has been a serious one then it may be that replacement life insurance cannot be obtained due to health reasons.
  
  If you do decide on one of these “bundled policies” make sure it covers both your critical illness and life insurance needs. Even though it may prove slightly more expensive, it may be worth considering separate policies for these different types of cover.

• Total and permanent disability cover
  Many Critical Illness insurance policies will also include cover for 'total and permanent disability'. This is designed to pay out if you become unable to work due to permanent disability arising from any illness or injury (regardless of whether it is listed in the policy).  If such cover is included, it is important to establish whether the policy will cover “any occupation” or “own occupation”. Generally cover is more expensive if the plan is written on an "own occupation" rather than "any occupation" basis.  Please ask for advice on this important aspect of these policies.

Whether or not it is a good idea to include this cover is debatable, as it may overlap with Permanent Health or income protection insurance. However there are differences, the greatest of which is that Critical Illness insurance pays a lump sum whereas income protection pays a regular income to meet your income needs.  In these circumstances people often prefer the lump sum so they have the flexibility to perhaps pay off debts. However, if finances allow there is nothing to prevent you having both forms of cover.