How Much Critical Illness Cover Do I Need?
Working out how much Critical Illness Insurance you need can be tricky. How much Critical Illness Cover is enough? Use our 2024 guide to work out how much insurance is right for you.
Critical Illness Insurance is a type of protection that pays out a tax-free cash lump sum if you’re diagnosed with one of the critical illnesses as defined by the policy’s terms.
Most policies usually cover around 40 severe or ‘critical’ illnesses that you might suffer from and that will trigger a payout. However, there are policies which cover fewer than five illnesses and those which cover more than one hundred, so it pays to check the policy terms carefully before you buy.
The most common three claims on these policies are for cancer, heart attacks and strokes.
Critical Illness Cover is often linked to a mortgage, which means you set the amount to cover your mortgage and, should you become critically ill, the policy pays out that sum to pay off your mortgage.
You may wish to hold some cover over and above your mortgage debt to provide funds to live off if you can’t work due to your illness or to adapt your home in the event of a disability.
According to Aviva, the top seven reasons for making a Critical Illness Insurance claim on one of its policies in 2017 were:
However, these are all very broad terms for specific critical health events. It’s important when you take out a policy that you do so fully informed, knowing what is and isn’t covered.
For instance, not every incidence of cancer will be covered – lower grade, in-situ cancers (i.e. those that have not spread) may not always be covered.
Below we explore the definitions of these seven critical illnesses to help you understand what will and won’t be covered if you ever, unfortunately, need to make a claim.
As mentioned, when you’re diagnosed with a critical illness you’ll need to be diagnosed with a specific form of that illness. It will also have to be of a specific severity to make a claim.
Below we’ve laid out the top seven critical illnesses that made up the bulk of Aviva’s 2017 claims and provided the definitions of those illnesses to provide a better idea of the circumstances under which you’ll be able to claim.
Any malignant tumour positively diagnosed by histological confirmation and characterised by the uncontrolled growth of malignant cells and invasion of tissue.
‘Malignant tumours’ includes cancers such as leukaemia, sarcoma and lymphoma (except cutaneous lymphoma confined to the skin).
The following cancers are excluded:
Death of heart muscle due to inadequate blood supply that has resulted in all of the following evidence of acute myocardial infarction:
The evidence must show a definite acute myocardial infarction.
For the above definition, the following are not covered:
The death of brain tissue due to inadequate blood supply or haemorrhage within the skull resulting in either:
For the above definition, the following is not covered:
Death of brain tissue: When a stroke occurs, blood supply to an area of the brain is cut off or restricted, resulting in brain tissue dying
Where there have been symptoms and you’ve received a definite diagnosis of multiple sclerosis from a consultant neurologist. There must have been clinical impairment of motor or sensory function caused by multiple sclerosis.
A benign brain tumour that results in permanent symptoms or requires invasive surgery.
A non-malignant tumour or cyst originating from the brain, cranial nerves or meninges within the skull, resulting in permanent neurological deficit with persisting clinical symptoms or requiring invasive surgery.
For the above definition, the following are excluded:
The undergoing of surgery on the advice of a consultant cardiologist to correct narrowing or blockage of one or more coronary arteries with bypass grafts.
The undergoing of surgery on the advice of a consultant cardiologist to replace or repair one or more heart valves.
While Critical Illness Insurance will pay out a tax-free lump sum if you suffer from a critical illness, there are some limitations on this.
As outlined above, you need to become ill with a specific type and grade of critical illness to make a claim.
This means, for example, that some less serious cases of cancer are not covered. Another example is the case of a transient ischaemic attack or mini-stroke, which isn’t covered under the definition of stroke.
Critical Illness Insurance also demands that the illness be critical by the very nature of the policy.
As such, this means that less serious conditions simply aren’t covered because they don’t meet the definition of being ‘critical’.
With Income Protection, on the other hand, there’s no requirement for the illness to be critical in order to make a claim. The only barrier to claiming is whether or not the illness has prevented you from working for longer than your chosen deferred period.
Providing this is the case, you can make a claim on an Income Protection policy, which will be paid in the form of an ongoing monthly income. The best policies will continue to pay out for as long as you need it, right up until retirement if necessary.
Musculoskeletal claims (including bad backs) and mental health problems make up the majority of claims when it comes to Income Protection. While these conditions are by no means critical, they can nonetheless be debilitating and prevent you from working.
Critical Illness Insurance | Income Protection |
|---|---|
Pays out a tax-free lump sum if you’re diagnosed with one of the critical illnesses listed in the policy. | Pays out a regular monthly income if you can’t work due to illness or injury. |
Most policies typically cover around 40 specified illnesses and injuries, although you’ll need to meet the required level of severity for one of these illnesses to make a claim. | Income Protection, when the ‘own occupation’ definition of incapacity is used, pays out for any medical issue that prevents you from performing the daily activities of your job. |
Most policies will exclude ‘minor’ or ‘low-grade’ forms of the illnesses listed. | No standard exclusions other than potentially based on your pre-existing medical history. |
You’ll receive the lump sum payout on confirmation of diagnosis of one of the illnesses listed by the policy where you meet the required criteria for that illness. | You’ll receive monthly payments if you can’t work due to illness or injury which will continue until you reach the end of your payout period (short-term policies) or until you retire / recover and return to work (long-term policies). |
Below is a chart compiled from The Exeter’s 2017 claims statistics for Income Protection.
As you can see, nearly half of claims are made up of musculoskeletal issues and back pain, with a further 7% made up of mental health problems.
Neither of these are deemed ‘critical’ as defined by a Critical Illness Insurance provider yet clearly result in many successful Income Protection claims each year.
As you can see, there are lots of factors to consider when you’re looking at Critical Illness Insurance.
You need to carefully examine not just the number of critical illnesses covered but also the definitions of those illnesses and understand how these definitions will work should you need to make a claim.
We have access to an industry-exclusive tool that allows us to ‘rank’ Critical Illness Insurance policies based on which ones are the most likely to pay out for an individual in your demographic, allowing us to tailor advice to your needs.
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.
If you’re looking into Critical Illness Insurance, an adviser should generally be the first port of call.
This cover can be complicated with lots of jargon to digest – that’s where an expert can really be of service.
To get in touch, please don’t hesitate to drop us a line on 02084327333 or email help@drewberry.co.uk.
Tom Conner
Director at Drewberry