Providing financial security at an emotional and difficult time

It’s easy to think “it won’t happen to me,” but if the worst should happen, your critical illness insurance could help provide financial security at an emotional and difficult time. Whether it helps pay off your mortgage, funds a relaxing holiday to recover from treatment, or just help you cope with the bills and expenses, the lump sum pay-out from critical illness insurance cover could relieve worries and let you concentrate on getting better.

Most home buyers purchase life assurance when they arrange a mortgage, but only a minority obtains critical illness insurance. Critical illness insurance pays a tax-free lump sum on the diagnosis of any one of a list of specified serious illnesses – including cancer and heart attack.

Your questions answered

Q: What is critical illness insurance?
A: Critical illness insurance pays out a tax-free lump sum if you are diagnosed as having one of the specific life-threatening conditions defined in the policy. Policies often offer combined life and critical illness insurance. These pay out if you are diagnosed with a critical illness, or you die, whichever happens first.

Q: What conditions are covered?
A: All policies should cover seven core conditions. These are cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. They will also pay out if a policyholder becomes permanently disabled as a result of injury or illness.

But not all conditions are necessarily covered. In 2011 the Association of British Insurers introduced a set of best practice guidelines.

The rules include clarification on when policies will pay out if a claimant suffers ‘total permanent disability.’ All policies automatically include reduced cover for children but the new rules spell out when it will not apply – for example, if the condition was present at birth.

Q: When should I have a critical illness insurance policy?
A: Your need to be covered by insurance against the diagnosis of a critical illness will largely depend on your life stage and your particular circumstances. These might include having a family to support, being a homeowner and paying a mortgage, those who have paid off their mortgage, or those who have separated from their partner and have dependant children.
If you are about to start a family (or have one already), a critical illness insurance policy is an essential way to plan for the entire family’s protection from the outset.

Q: I have already paid off my mortgage, so why do I need critical insurance?
A: If you have paid off your mortgage, and your mortgage protection policy included critical illness insurance, but you still have dependants – you should have a separate critical illness insurance policy. It will enable you to continue to protect your family should the unthinkable happen to you.

Q: Why do I need critical illness insurance cover as I’m separated from my partner?
A: If you are unfortunate enough to have to go through divorce proceedings but are awarded custody of the children, you could ask your former spouse to take out a critical illness insurance policy. If your former partner is required to pay maintenance costs but is unable to work, the money spent on the children may even stop.

If you set up a critical illness insurance policy, the money could be paid into a trust fund from which the children will benefit directly. The policy cannot be in the name of the children, however.

The article is for your general information and use only and is not intended to address your particular requirements. No individual should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation.