Critical illness or serious illness cover

mumf

I am reviewing our life assurance. Our mortgage is paid and kids are financially independent.

Currently we both have life cover and critical illness. This was to cover the mortgage.

My question is this. Is Critical Illness cover any good? I have heard that often firms find ways to not pay out, leaving people high and dry when they thought they were covered.

Does anyone have practical experience? Thank you.

dunstonh

I have heard that often firms find ways to not pay out, leaving people high and dry when they thought they were covered.

payout rates tend to be around 95% of claims. The rejections tend to be mostly non-disclosure (sometimes fraudulent) or something that is not on the critical illness list for that provider.

The ideal scenario is to have both. However, budgets often mean a compromise is needed. So, permanent health insurance is normally prioritised above the other options. It doesnt provide a lump sum but pays an income and is not limited to a selection of illnesses but the inability to work.

mumf

I have been coming across Permanent Health Insurance. Forgive me, but what is this compared to normal Life Insurance?

Aretnap

Permanent health insurance protects your income (or at least a proportion of it, typically 60-70%) if you become too ill to work. Many people consider it to be a better option than critical illness cover because:

(a) CI cover only pays out if you get an illness, of a specific severity, which is on a pre-written list. If you get an illness which severely affects your life but which isn't on the list, that's just tough luck. PHI pays for any illness which is serious enough to mean that you can't do your job - subject to any exclusions which may be added due to your own medical history.

(b) CI cover pays a lump sum which sounds like a lot of money, but once you've spent it it's gone, and it often wouldn't be enough to see you comfortably through to retirement if you're relatively young and struck down by a disease which means you can never work again. PHI pays a monthly income for as long as you need it (or until you reach retirement age), which is probably more useful if you have a long term illness.

Both are distinct from life insurance which pays a lump sum (or sometimes a regular payment for a specified amount of time) when you die, but not if you become ill, and is therefore designed to protect your dependants rather than to protect you personally. (Life insurance and critical illness insurance are sometimes bundled together into a single policy, but fundamentally they're still two quite different things)