HOW MUCH CRITICAL ILLNESS COVER DO I NEED?

What is a critical illness?

A critical illness is a really serious sickness or health condition that can change your life. It might make it hard for you to work and pay your bills. These kinds of illnesses can happen to anyone, anytime – they’re very unpredictable.

What does critical illness insurance cover?

In critical illness insurance, the illnesses covered are those specified in the policy. Commonly, these include certain types of cancer, heart attacks, and strokes. However, policies can vary, covering many different conditions or just a few.

It’s important to check exactly which conditions a policy covers before you commit to it. For example, one policy might cover 52 different conditions. Remember, coverage usually applies only if you survive for at least 10 days following your diagnosis or surgery.

Critical illness cover is different from life insurance; it’s not about leaving money when you pass away. If you die, the critical illness policy ends without a payout.

What is a cover amount?

The cover amount is the sum you select at the time of purchasing your policy. Upon a valid claim, this is the amount the insurer will pay out as a tax-free one-time sum, which you can use in any way you need.

Though the policy usually ends after paying out the full lump sum once, some policies also cover less severe conditions and include children’s cover without extra charges. In these cases, the payout for these additional coverages isn’t the total amount, but the policy can remain active as long as you continue paying the premiums.

How to work out how much critical illness cover you need

Figuring out how much critical illness cover you need involves thinking about the expenses you’d need to cover if you couldn’t work due to a serious health condition. Consider costs like:

• Your mortgage or rent payments.
• Any ongoing loans.
• Childcare or other expenses for people who depend on you.
• Regular bills such as utilities, council tax, and car insurance.
• Medical costs for things like making your home more accessible or travel to the hospital, and possibly private healthcare.
• Day-to-day living expenses, including groceries and fuel.

Once you’ve listed these, think about:

• Any savings or assets you have that you could use.
• Whether you would qualify for any government benefits like Employment and Support Allowance.
• If you have an employee benefits package that includes sick leave for a long period.

This should give you a rough idea of the payout amount you would need, which you can then use for getting a quote. If you’re unsure, it might be helpful to talk to a financial advisor. Remember, the amount of cover you choose should fit your and your family’s financial needs.

How much can you expect to pay?

The cost of critical illness cover depends on your individual circumstances, so it’s key to choose a policy and cover amount that fits your specific needs. What’s right for someone else might not be right for you.

The price of your cover can be influenced by several factors, including:

Your policy

• The length of time you want your policy (the policy term)
• the type of policy you choose
• Whether your cover is level, decreasing, or inflation-protected
• Whether the policy is just for you or if it includes a partner

Your Personal Details

• Generally, the older you are when you start the policy, the higher the premium
• Riskier occupations may lead to higher premiums
• Factors like smoking and your family’s medical history can affect the cost

Remember, maintaining your cover depends on keeping up with your premium payments. If you stop paying, your cover will also stop.

How to choose between decreasing and level cover

Decreasing Cover

Choose decreasing cover if your main goal is to pay off a repayment mortgage or a long-term loan in case of a critical illness.

This type of cover is named ‘decreasing’ because the amount of cover reduces over time, just like the remaining balance on your mortgage or loan, making it less expensive than level cover. Your premiums are fixed, and you pay them monthly for a set period.

Level Cover

Level cover is suitable if you need a lump sum for other expenses like ongoing rent or mortgage payments, childcare, regular bills, or unforeseen costs related to a critical illness. With this option, both the cover amount and your monthly payments stay the same throughout the policy duration. This means the premiums are higher compared to decreasing cover, as the payout amount doesn’t reduce over time.

You also have the option to adjust your cover to account for inflation, ensuring the value of your lump sum keeps up with the cost of living. Although this can lead to higher monthly payments, it protects the payout from losing value over time.

Should life insurance and critical illness cover amounts be different?

If you’re considering both life insurance and critical illness cover, it’s important to note that they serve different purposes and are often separate policies. This means you can choose different amounts of coverage for each.

Critical illness cover is there to support you financially during treatment and recovery from a serious illness. This could be for a short period or longer. On the other hand, life insurance is designed to provide for your loved ones after your death.

As the two types of cover address different needs, the amount of critical illness cover you need might not be the same as your life insurance. When getting a quote, try different cover amounts to see which premiums are manageable for you. Just ensure that the chosen amount meets your realistic needs.

If you’re uncertain about the right amount of cover, talking to a financial adviser can be very helpful.