Protecting your lifestyle from the unexpected
Most home buyers purchase life assurance when they arrange a mortgage, but far fewer obtain another form of financial protection that they are considerably more likely to need before they reach retirement.
Critical illness cover is a long-term insurance policy designed to pay you a tax-free lump sum on the diagnosis of certain specified life-threatening or debilitating (but not necessarily fatal) conditions such as a some forms of heart attack, stroke, certain types/stages of cancer, multiple sclerosis and loss of limbs. The cover can provide cash to allow you to pursue a less stressful lifestyle while you recover from illness, or you can use it for any other purpose.
A more comprehensive policy will cover many more serious conditions including loss of sight, permanent loss of hearing and a total and permanent disability that stops you from working. Some policies also provide cover against the loss of limbs.
If you are single with no dependants, critical illness cover can be used to pay off your mortgage, which means that you would have fewer bills, or a lump sum to use if you became very unwell. And if you are part of a couple, it can provide much-needed financial support at a time of emotional stress.
The illnesses covered are specified in the policy along with any exclusions and limitations, which may differ between insurers. Critical illness policies usually only pay out once, so are not a replacement for income. Some policies offer combined life and critical illness cover. These pay out if you are diagnosed with a critical illness, or if you die, whichever happens first.
If you already have an existing critical illness policy, you might find that by replacing a policy you would lose some of the benefits if you have developed any illnesses since you took out the first policy. It is important to seek professional advice before considering replacing or switching your policy, as pre-existing conditions may not be covered under a new policy.
Some policies allow you to increase your cover, particularly after lifestyle changes such as marriage, moving home or having children. If you cannot increase the cover under your existing policy, you could consider taking out a new policy just to ‘top up’ your existing cover.
Very few policies will pay out as soon as you receive diagnosis of any of the conditions listed in the policy and most pay out only after a ‘survival period’, which is typically 28 days. This means that if you die within 28 days of meeting the definition of the critical illness given in the policy, the cover would not pay out.
Permanent total disability is usually included in the policy. Some insurers define permanent total disability as being unable to work as you normally would as a result of sickness while others see it as being unable to independently perform three or more ‘Activities of Daily Living’ as a result of sickness or accident.
Activities of daily living include:
– Bathing
– Dressing and undressing
– Eating
– Transferring from bed to chair, and back again