What Is Critical Illness Insurance And What Does It Cover?
Critical Illness Cover is an insurance policy that will pay out a cash lump sum if you suffer from one of the serious illnesses listed under the policy.
The three most common critical illness claims are for:
Cancer
Heart attacks
Strokes.
As well as the above ‘big three’ conditions, Critical Illness Insurance covers typically anywhere between around 10 to more than 100 serious or critical illnesses. This will depend on your insurer.
Other common conditions covered include:
Multiple Sclerosis
Permanent loss of vision / hearing
Loss of limbs
Motor Neurone Disease
Organ failure / transplant.
Each insurer has their own definitions of these illnesses, which effectively sets a ‘threshold’ for how serious that illness has to be before you can make a successful claim.
That means getting both robust definitions of the critical illnesses as well as a policy that covers a large number of conditions is important, so always read the small print!
Victoria Slade Independent Protection Expert at Drewberry
5 Minute Video Guide To Critical Illness Cover In The UK
Don’t have enough time to read this guide, but want a quick expert run down of Critical Illness Cover? Our very own Alex Weir, is here to explain what it is and all you need to know before taking out a policy. Just press play! 👇
Do I Need Critical Illness Cover?
If you develop a critical illness, this insurance policy is designed to pay out a lump sum.
You can use it to repay a mortgage, keep up with the bills or adapt your home to suit a new disability – however you use it, the cash can prove a hugely valuable lifeline.
Unfortunately, no one can ever be sure what life has in store for them. A serious illness could strike at any time. Statistics show the risk of many critical illnesses is rising in the UK, even among younger people of working age.
Having seen it first hand, I can’t emphasis enough the power of financial support in helping people get back on their feet. For some people it can quite literally mean the difference between life and death.
Kevin Carr CEO of Protection Review and Co-Chairman of the Income Protection Task Force (IPTF)
Major Illnesses: The Statistics
Around 1 in 4 new cancer cases diagnosed every year are among people aged under 60 (Cancer Research UK)
50% of people born after 1960 will be diagnosed with cancer at some point in their lifetime
There are 107,800 people living in the UK with MS and more than 5,000 people were diagnosed with the condition in 2016. Almost two-thirds of people currently living with multiple sclerosis are under 60, while over three-quarters of new diagnoses in 2016 were among the under 60s (Multiple Sclerosis Society).
Not every incidence of one of these illnesses will be covered by Critical Illness Cover. Less severe forms of conditions such as cancer or heart attack may not be included in the wording of your policy, so it’s important to check definitions carefully.
How Does Critical Illness Cover Work?
You take out a policy, choosing how much cover you need and the length of the policy.
You suffer from a critical illness as defined by the policy wording during the term of your cover.
You make a claim, submitting any supporting medical evidence the insurer requires.
Once the claim is accepted, the insurer pays out. If your illness is severe enough to receive the full sum assured, the policy terminates.
The cash can be used for a range of needs, such as meeting financial obligations or modifying a home to accommodate a new disability.
How Much Critical Illness Insurance Do I Need?
The amount of cover you choose doesn’t need will really depend on your personal circumstances and your budget.
However, here are some broad considerations you may wish to take into account when working out how much insurance you need:
How much is outstanding on your mortgage
Any other outstanding debts
Daily living expenses for you and your family
Medical / nursing / care home fees
Private medical treatment – both the cost of treatment itself and, if necessary, funds to travel abroad to have it.
You’ll also have to consider Critical Illness Cover underwriting limits when you’re insuring yourself.
These are thresholds which, once you cross, the insurer will require further medical evidence such as a GP Report, bloods or a full medical before your policy can be accepted.
Your age
The older we are, the higher the risk of us suffering from a critical illness
Your state of health
Your current state of health, including your height and weight and whether you’re a smoker, will all be considered when working out the cost of Critical Illness Insurance
Medical history
As well as your current state of health, insurers will look back into your medical history to see if you’ve suffered a from an illness in the past. If so, the insurer may choose to load the baseline premium to reflect your higher degree of risk or decline to insure certain conditions on the policy.
Your Policy Options
There are a number of options for you to consider to make sure the policy works for you and your needs.
Decreasing or level cover?
Level Term
The benefit stays fixed over time, so the policy will pay out the same amount in the first year as in the last
Decreasing Term
The benefit falls over time, reaching zero by the end of the policy, therefore making this cover the cheaper of the two.
Level term critical illness cover is often used where the policy is to cover an interest-only mortgage, where the capital value of the loan doesn’t diminish over time.
Also, level policies are used to ensure you and your loved ones will always receive the full benefit from the policy, no matter when you develop the critical illness.
Decreasing critical illness insurance is often used to cover a straightforward repayment mortgage, where the mortgage balance falls over time.
As the benefit falls over time even as you age and the risk of you claiming increases, decreasing cover is cheaper than level cover.
Guaranteed or reviewable premiums?
Guaranteed premiums will remain fixed for the life of the policy, unless you’ve opted to index-link the cover so that it keeps pace with inflation.
With reviewable premiums, the insurer has the discretion to increase the amount you pay for Critical Illness Cover on a regular basis. This could see significant increases in premiums on an annual basis.
Single or joint cover?
Just as you can take out Joint Life Insurance, you can take out Joint Critical Illness Cover. This will cover two people for the risk of serious illnesses under one policy.
It’s usually slightly cheaper than buying two separate individual policies but may not always be the best option in the long run.
Just as with life cover, the policy will only pay out once on the first instance of critical illness, potentially leaving the healthy partner without any cover.
If budget is available it can worth considering taking out two individual policies while you are both young, fit and healthy.
Number of critical illnesses covered
Always check not only the number of critical illnesses covered – the average is around 40 but this can be as few as 10 or extend to over 120 – but also the definitions surrounding those illnesses.
Look for clear, robust definitions of the serious illnesses covered by your insurance plan to enhance your likelihood of being able to claim.
Cost of Critical Illness Cover for a 25-Year-Old
A healthy 25-year-old looking for £100,000 worth of cover with guaranteed premiums until the age of 65 could expect to pay:
Level Life and Critical Illness
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£27.73 per month
£39.06 per month
Decreasing Life and Critical Illness
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£18.94 per month
£24.54 per month
Cost of Critical Illness Cover for a 40-Year-Old
A healthy 40-year-old looking for £100,000 worth of cover with guaranteed premiums until the age of 65 could expect to pay:
Level Life and Critical Illness
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🚬
£47.89 per month
£73.79 per month
Decreasing Life and Critical Illness
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🚬
£33.23 per month
£54.71 per month
Cost of Critical Illness Cover for a 55-year-old
A healthy 55-year-old looking for £100,000 worth of cover with guaranteed premiums until the age of 65 could expect to pay:
Level Life and Critical Illness
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🚬
£109.44 per month
£215.94 per month
Decreasing Life and Critical Illness
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£72.00 per month
£128.29 per month
Quotes accurate as of January 8th, 2019
The price differentiation between insurers with the best proposition and those with a lesser offering may only be a few pounds.
In this instance, you’re paying a few pounds more to potentially increase your chance of making a successful claim, which many people find worthwhile.
Robert Harvey Head of Protection Advice at Drewberry
Common Critical Illness Insurance Questions...
What illnesses are covered by Critical Illness Insurance?
A range of illnesses are covered by Critical Illness Cover. However, how many that will be covered depends on the policy.
There are policies that cover 10 or fewer critical illnesses and those which cover more than 100, although the average number covered is between 30 and 40. It’s therefore important to research the market and get the best deal for you.
The ‘big three’ illnesses covered are cancer, heart attack and stroke. These make up by far the majority of all Critical Illness Insurance claims.
Other common illnesses covered include:
Multiple sclerosis
Parkinson’s disease
HIV infection
Benign brain tumour
Heart valve replacement / repair
Bacterial meningitis
Permanent, irreversible blindness / deafness.
What qualifies as a Critical Illness?
What qualifies as a critical illness under Critical Illness Insurancedepends on the exact wording of the policy. Some policies have more robust definitions of critical illnesses than others and so could be easier to make a claim on than others.
People often get hung up on the number of critical illnesses covered without considering the definitions of those illnesses. It’s the definitions that are much more important as these determine how likely you are to be able to claim under a particular illness.
At Drewberry, we have access to an industry exclusive tool that ranks Critical Illness Insurance policies based on how likely it is that someone in your demographic will be able to claim. To take advantage of this, don’t hesitate to get in touch and we’ll be happy to go through this with you.
What's the difference between Critical Illness and Terminal Illness?
Terminal Illness Insurance comes as a free rider on most Life Insurance policies. Given that most Critical Illness Cover is sold alongside Life Insurance, it’s often an option on Critical Illness Cover as well.
Terminal Illness Insurance is a clause in the policy that allows for it to pay out early should you be diagnosed as terminally ill (with less than 12 months to live). This allows for you to be financially secure so you don’t have to worry about money at such as difficult time.
Critical Illness Cover, on the other hand, is designed to pay out for the critical illnesses specified in the policy subject to the policy wording. The illness doesn’t have to be terminal for a payout under Critical Illness Cover — it’s possible to receive a critical illness payout and then recover fully.
Do you pay tax on a Critical Illness Insurance payout?
No, there’s not typically tax due on a personal Critical Illness Insurance payout. This is because the premiums are paid from income after tax has been deducted (i.e. your wages) and so the policy has already effectively been taxed once.
Compare UK’s Best Critical Illness Insurance Providers?
There are a number of factors to consider when you’re looking for the best Critical Illness Cover. An obvious place to start is the insurer’s reputation and how good they are at paying claims.
Aegon’s Scotland-based UK operations are wholly owned and operated by Dutch insurer Aegon N.V.
Maximum cover: £3 million
Survival period: 14 days
Minimum age: 18
Maximum age: 74
Minimum policy length: 5 years
Children’s Critical Illness Cover: Automatic, the lower of 50% of the sum insured or £25,000
Aviva was founded in 1797, but the Aviva brand as it is today was formed in 2000 by the merger of Norwich Union and CGU PLC.
Maximum cover: £1 million
Survival period: 10 days
Minimum age: 18
Maximum age: Policy must end before 75th birthday (maximum entry age 64)
Minimum policy length: 5 years
Children’s Critical Illness Cover: Automatic, paying the lower of 50% of the sum insured or £25,000
Guardian
Guardian can trace its history back to 1821 when it was founded as Guardian Fire & Life.
It looks at Critical Illness Insurance differently, offering payouts for any form of malignant cancer with histological confirmation as diagnosed by a UK oncologist, including malignant skin cancer. Guardian also features a simplified claims process for heart attacks that only requires confirmation from a consultant that a heart attack has occurred to pay a heart attack claim, rather than needing extensive medical evidence to assess the severity of the attack.
Maximum cover: £3 million
Survival period: 14 days
Minimum age: 18
Maximum age: Policy must end before 70th birthday (maximum entry age 65)
Minimum policy length: 5 years
Children’s Critical Illness Cover: Optional, paying any amount from £10,000 up to a maximum of the amount you choose for your own cover or an overall maximum of £100,000
Legal & General
L&G was formed as an insurance company for lawyers, by lawyers in 1836. It has since grown to become one of the country’s best-known financial services companies.
Maximum cover: £1 million
Survival period: 14 days
Minimum age: 18
Maximum age: Policy must end before 70th birthday (maximum entry age 67)
Minimum policy length: 2 years
Children’s Critical Illness Cover: Automatic, paying the lower of 50% of the amount the adult policyholder is covered for or £25,000
Liverpool Victoria
LV is the UK’s largest friendly society, with more than 5.8 million customers, 1.1 million of whom are members.
Maximum cover: £1 million
Survival period: 14 days
Minimum age: 17
Maximum age: Policy must end before 70th birthday (maximum entry age 64)
Minimum policy length: 5 years
Children’s Critical Illness Cover: Automatic, paying the lower of 50% of the amount the adult policyholder is covered for or £25,000
Royal London
Royal London previously operated Scottish Provident and Bright Grey as separated brands providing Critical Illness Insurance under the Royal London umbrella. From 2016, both have been merged into the main Royal London brand.
Maximum cover: £3 million
Survival period: 10 days
Minimum age: 18
Maximum age: Policy must end before 85th birthday (maximum entry age 64)
Minimum policy length: 5 years
Children’s Critical Illness Cover: Automatic, paying the lower of 50% of the amount the adult policyholder is covered for or £50,000
Scottish Widows
Founded in 1812, Scottish Widows is today part of Lloyds Banking Group.
Maximum cover: £2 million
Survival period: 14 days
Minimum age: 18
Maximum age: Policy must end before 70th birthday (maximum entry age 64)
Minimum policy length: 5 years
Children’s Critical Illness Cover: Automatic, paying the lower of 50% of the amount the adult policyholder is covered for or £25,000
Zurich
Zurich is a Swiss-based global insurance giant, operating in more than 170 countries. It employs around 55,000 employees worldwide, including 4,500 in the UK.
Maximum cover: £7 million
Survival period: 14 days
Minimum age: 16
Maximum age: Policy must end before 74th birthday (maximum entry age 69)
Minimum policy length: 5 years
Children’s Critical Illness Cover: Automatic, paying up to £25,000
Survival and claims notification periods
Critical Illness Insurance usually has a ‘survival period‘ written into the policy.
A Critical Illness Cover survival period means you have to survive for a set period of time – often 14 days – after being diagnosed with a critical illness or disability.
Many policies also have a ‘claims notification period’, whereby insurers require you to inform them (or for a member of your family to inform them if you’re unable to) within a set period of time after the onset of a critical illness for the claim to be paid.
One particular insurer has a claims notification period of just 13 weeks, which sounds a lot longer than it is when you’re dealing with the onset of a serious illness, especially if that illness has reduced your capacity to act by yourself.
It’s more common for insurers to request notification ‘as soon as possible’, but it’s always worth checking this as it varies between insurer to insurer.
Is Income Protection Better Than Critical Illness Insurance?
Where Critical Illness Insurance will pay out a lump sum based on you meeting a specific definition of a serious illness, Income Protection Insurance will pay out a monthly income should you suffer an illness or injury which prevents you from working and earning an income.
Income Protection tends to be seen as the more comprehensive policy and is often more appropriate way of a working adult protecting themselves financially.
A critical illness payout could quite feasibly be eaten up relatively quickly by repaying a mortgage and making any adjustments to a home to accommodate a new disability.
Meanwhile, an Income Protection policy could continue paying you a monthly income to cover your bills right up to your retirement if you are never able to return to work.
Income Protection is often recommended to working adults over Critical Illness Cover as it can be a far more all-encompassing form of protection. It’s designed to kick in if anything medically renders you incapable of doing your job.
Mike Barrow Independent Protection Expert at Drewberry
Income Protection
Critical Illness Insurance
Pays a monthly income
Pays out one lump sum
With own occupation cover, policy pays out if anything medically stops you doing your job
Only covers a set number of serious (i.e. critical) illnesses
You can make multiple claims on Income Protection policies
Policy only pays out once and then ends
Benefit is tied to your earnings; you can insure a percentage of your gross income each month
You can insure yourself for an arbitrary lump sum benefit, however much you feel you need
You and your partner must have individual Income Protection policies
Can be taken out jointly with Life Insurance and your partner
Get Critical Illness Insurance Quotes & Expert Advice
When it comes to matters as important as your health and your family’s financial future, it’s no surprise that everyone wants to get it right.
We’ve got all the tools and the know-how to help you find the best Critical Illness Insurance for you and your family so you know you’re covered should the worst happen.
Why Speak to Us…
We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.
There is no fee for our service
We are independent and impartial Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
We’ve got bargaining power on our side
This allows us to negotiate better premiums for you than you going direct yourself.
You’ll speak to a dedicated expert from start to finish
You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
Gain the protection of regulated advice
You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
Claims support when you need it the most
You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.
If it is all getting a little confusing and you want to talk through your options to make sure you find the most suitable cover please don’t hesitate to get in touch.
Pop us a call on 02084327333 or email help@drewberry.co.uk.
Samantha Haffenden-Angear Independent Protection Expert at Drewberry