Drewberry™ provide pensions, investment and insurance advice for Money to the Masses readers throughout the UK.

 

Do I need Critical Illness Cover?

What does it cover?

Critical illness cover is a type of insurance that pays out a cash lump-sum to help you cope financially if you were to be diagnosed with a specified ‘critical illness condition’.

Depending on the insurer, critical illness insurance can cover anywhere between 30 and 100 conditions, but the majority of claims are for cancer, heart attack and stroke.

As the price is often the same (or even lower) when combined with life insurance, it is very rare to take out this type of protection as a standalone product.

Do I need Critical Illness Insurance?

As 1 in 10 people have been unable to work due to illness or injury for over 6 months (The Guardian / Unum Survey, 2011) it makes sense to think about your financial situation and what protection you currently have in place. These are some common factors to consider:

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Do you have a mortgage?

It is extremely common to take out life insurance with critical illness cover in order to protect a mortgage loan.

With regards to the critical illness side of the plan, this cover could mean the difference between losing and keeping your home if you were to suffer a serious illness which prevented you from working and therefore, earning a living.

 

Do you have savings?

It may be the case that you have a solid level of savings that could provide a comfort zone should something happen to your health. For example, you may have enough savings to pay your mortgage and bills for a year, and therefore, decide that you do not need critical illness cover.

The main risk with relying on savings is that your savings could run out before you are well enough to start earning a living again. Research from the insurer Ageas (pricing data, 2011) showed that 66% of people that were off work for over 6 months due to accident or sickness were still off work 5 years later.

 

Do you have Income Protection?

When looking to protect yourself financially against the risk of ill health the most comprehensive insurance policy available is long-term income protection.

In fact, Which? Money assert that “The one protection policy every working adult in the UK should consider is the very one most of us don’t have – Income Protection”.

Income Protection or Critical Illness Cover?

Income protection pays out a monthly benefit to replace lost income if you are too unwell to work, and long-term plans can payout right up until retirement age if you cannot return to work.

Income protection is often preferred to critical illness cover because only about 50% of people off work for 6 months or more due to ill health would receive a payout from a critical illness plan (Which? – Understanding Protection Insurance, 2012).

Thus, if you already have income protection there may not be a need to take out a critical illness policy in addition. Naturally, if you do have income protection you may also like to have a small amount of critical illness protection to cover the cost of any larger fixed costs associated with disability, such as making home improvements.

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Does your employer provide you with any cover?

It may be the case that your employer provides you with critical illness cover or income protection insurance and therefore it wouldn’t make sense doubling up on cover. It is definitely worth finding out from your manager or HR department if you’re already covered.

Some people make the mistake of thinking that their employer will provide full sick pay. Drewberry research from January 2013 found that 54% of people receive either no sick pay or up to a maximum of 3 months full pay. If you do receive sick pay the risk of long-term ill health still remains so it is still worth considering either income protection or critical illness cover.

 

Will the Government help me?

The state does offer some support in the form of the Employment & Support Allowance (ESA) but there is a strict Work Capability Assessment in order to qualify and the benefit amount is only £99.15 per week (2013), which is very unlikely to cover all the household bills for most people.

Thus, when asking yourself the question, “Do I need critical illness cover”, it is important to consider your monthly outgoings, whether your home might be at risk and what financial back-ups you have in place should something happen to your health.

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