Crash course in critical illness cover

Pesto2606

Hi

I'm looking for a bit of a crash course around critical illness cover. I'll try to cover off my circumstances first and then hopefully get some advice from you guys.

A bit about me
- 30 years old, smoker, living with partner and step children (2 under 18)
- Sole application (for now)
- Currently renting privately & saving to buy
- No health issues currently or in the last 5 years
- fairly good salary just about reaching higher tax bracket
- no existing life insurance / policies / medical insurance (completely new to all of this)

Having seen quite a few people around me over the last 2 years fall severely poorly it's led me to consider what would happen if anything happened to me. Could I take a long period of time off work if needed and how could I continue to ensure that we are financially stable if something should happen? The answer right now is probably not. I do have some savings but nothing that could keep the house/family/ bills going if I was unable to work.

I have looked in to critical illness cover and it seems like a sensible option to protect me and my family. I did a quick check with aviva and
To cover me until I'm 75 I'm looking at around £50 per month for a 100k policy which i thought was reasonable.

What I couldn't determine is whether that cover could be transferred at any point in the future to another provider or cancelled if I wanted to go elsewhere?

I had hoped to cover all of this when taking out life insurance when applying for a mortgage and buying a house however for peace of mind I'd rather not have to wait. I suppose I want to cover myself in case of risk to health in the immediate future and then of course death once I have a house.

I don't have a specific question I just really don't understand the ins and outs of taking a policy like this out. I do understand that there are a list of agreed illnesses which the provider will consider 'critical illness' such as heart attack, cancer etc and it is only these that you are covered against.

Any information or pearls of wisdom from you sensible folks would be great

FutureGirl

You can cancel the policy and take a new one in the future at any point, just like any policy, you may be subject to cancellation fee's though as per the T&C's.

ACG

You can not transfer the policy. Once you take it out it will remain the same until you cancel it or make a claim.

The conditions covered have definitions - ie getting cancer may or may not result in a payout. It depends on the grade and where it is etc.

It is not a case of one or the other, but have you considered PHI? (Income Protection), it pays out a monthly amount if ou are unable to work due to ill health. The key difference is that there is no definition.

Chris_Pollard

Pesto, it is great you are thinking about insurance. The first thing to think about it how might you pay your rent, bills etc, if you were ill and unable to work? Statistically this is more likely to happen than you suffering a critical illness (CI). As previous posted wrote, this is Income Protection. If you're employed, your HR team will be able to tell you, if self employed, I suspect your income will reduce pretty quickly! I'd give that serious thought to IP before CI. I'm just challenging your thinking.

If you do take out CIC, please rest assured that all forms of malignant cancer are covered with the single exception of prostate cancer (not sure if you are male of female) where the early stages of prostate cancer are not covered but some insurers will provide a partial payment.

You can't transfer the cover, but if you health is good in a few years time, there might be better policies out there that suit your needs. Best thing you can do is get yourself insured when you are young as it gets more expensive the older you are.

Chuffed you're thinking about insurance, but I'd say the priority is IP first, some CIC and finally some life cover for your dependants.

Good luck and hope it helps.

Emma_Drewberry

Hi Pesto,

It is good that you're thinking about getting insurance. Critical Illness Insurance can be a big safety net for many people should they be diagnosed with a critical illness. However, there are other options you may want to consider as well.

Income Protection is another option that may work out better for some people depending on their circumstances. It's designed to replace a proportion of your monthly earnings if you can't work for any medical reason at all – not just something critical.

The IP policies pay out a monthly income for as long as you need them. This could be up to policy cease age potentially, which for longer-term plans are set at your retirement age. You can claim for an illness, recover, and then claim again for another illness later if required.

CIC, on the other hand, pays out one lump sum and then the policy ends should you unfortunately need to claim. So if you suffered an insurer-specified critical illness and claimed, the policy would be finished. Even if you suffered another entirely separate critical illness later you wouldn't have cover. What's more, getting cover again in the future after having suffered a critical illness could be quite expensive.

CIC pays out one lump sum – you have to consider whether this would be sufficient. For example, you can look up statistics from UK Stroke Association which show that almost 66% of stroke sufferers leave hospital with a disability. Not nice to think about but you said you're almost a higher-rate taxpayer. That would mean a £100k CIC policy is only about 2.5 years' worth of income at most if you couldn't work again due to disability after suffering a critical illness such as a stroke. Would that be enough?

What's more, for a successful claim on a CIC policy the illness has to be critical (the clue's in the name!). A bad back, for instance, is not deemed critical but (and I appreciate you haven't said what you do) if you were a builder it would certainly be an issue! In this instance, Income Protection may be a better option.

You say you're in good health which is good, and you're young, two factors which may keep the cost of IP low. Smoking, however, could push up the cost of cover due to the enhanced risk you present, but there are certain insurers who are 'smoker neutral' for IP so won't charge you any more for smoking.

As Chris Pollard has said, it's worth keeping in mind that the critical illness must be of a specified severity for some insurers to allow for a successful claim. For instance, some insurers may not pay out for what they deem a 'low grade' heart attack or a 'mini stroke', so check policy wording carefully!

Ultimately, speaking to an adviser about your options to help you decide which is the best policy for you is important. Income Protection can be adjusted to fit a budget by varying various aspects of the policy, moreso than with a CIC policy. An adviser can help in this area, too.

I hope this helps.