The financial security of your family has probably been one of your biggest concerns up to now. You could have taken care of this in different ways, from working hard to paying the bills and providing them with a good standard of living, to running the household and providing the best environment you can for living in. What you may not have done is think about what your contribution is actually worth to your family, and how they would manage if you were unable to support them in the way you do now due to being diagnosed with a serious illness. Critical life insurance is a policy that protects against these, and anyone with dependants should seriously consider it.
If you were to die unexpectedly, or develop a serious illness that meant you were unable to work, would your family still be financially secure? Even if you do not work, would your family be able to afford to pay others to take over all of the work you do around the home? We often don’t like to think about things like this, but unpleasant as they are it makes good financial sense to plan for them just in case things go wrong.
Critical life cover combines elements of two different types of policy so that you get the best possible value for the cover, and it can lead to substantial savings when compared to buying both types of cover separately. You are covered from a life point of view, so that in the event of your death your family will receive a lump sum. You are also covered for sickness, so that if you develop a serious illness you will also receive a lump sum payment.
Many people who opt for this type of insurance use it to protect their family from losing their biggest asset, their house. That isn’t the only reason for doing it, though, as even if you are mortgage free you can take out the cover and receive the cash benefit in the event of a claim. Life and critical illness insurance comes in two basic forms, term or whole of life. Term policies run for an agreed length of time, while whole of life are just what they say – as long as you pay the premiums, the policy is in place your whole life and is guaranteed to pay out on your death or diagnosis of a listed disease, whenever that may happen.
• Decreasing term cover reduces the amount you are insured for each year, in line with your outstanding mortgage balance if you have a repayment mortgage. It is usually bought to protect a repayment mortgage, and as the amount of the mortgage decreases every year so does the sum insured.
• Level term cover keeps the insured amount the same year after year. If you have an interest only mortgage and want the certainty of knowing the full amount is covered until the end of the term, then you might find this one attractive.
The life aspect of the policy is fairly simple. It will pay out a tax free lump sum if the holder dies while the policy is active. The critical illness cover can be a little more complex at first glance.
Critical illness cover
Critical illness cover policies usually cover a range of serious diseases or illnesses, from heart attacks and strokes to some forms of cancer. It is important when you apply that you provide your medical history as completely as possible, so that the risk can be calculated and any claim cannot be rejected because you didn’t mention something important. Almost anyone can apply for cover, and generally the younger you are and the better your medical history is, the cheaper the policy will be.
The cover that can be given by these policies is limited to a number of illnesses and diseases, and the list of conditions is maintained by the Association of British Insurers. From the list, providers are free to choose what they include in each policy, except for seven specific conditions which each policy typically has to include. These are coronary artery bypass, heart attack, cancer, kidney failure, stroke, major organ transplant and multiple sclerosis.
You should be aware that exclusions or conditions may apply to any policy, even to those illnesses which are listed in the policy details. To give a couple of common examples, heart attacks may only be covered if they have been confirmed by the use of an electrocardiogram, while related chronic conditions such as angina may be excluded altogether. Certain types of cancer may also be excluded, while prostate cancer will be covered except in the early stages. Most policies will exclude illnesses related to HIV / AIDS and drug use, as well as self inflicted injuries.
When choosing a policy, it is important that you find one that suits you. The cheapest policies do not always provide the best value, as they may contain a number of exclusions that could prevent a successful claim. Expensive policies on the other hand may charge you for cover that isn’t really relevant, such as relatively rare diseases that you are unlikely to develop. Some policies can include life insurance, which will be an extra cost if you have already taken it out separately. You should also be aware of the small print that could prevent a successful claim, as some include statements that declare you will only be covered if you cannot carry out your current job, rather than any job. The key to finding the right policy is to balance all these elements, making sure that you are getting the cover you need at a fair price.
You can choose a policy that runs for a fixed term, for example alongside your mortgage, or you can have an open ended policy that continues until you make a claim or reach the upper age limit for cover.
Generally speaking, the earlier you take out a policy the cheaper it will be. This is not just because younger people are less likely to develop critical illnesses, but also because the cost of medical treatment is rising all the time.
If you have to claim on a policy, the insurer will require medical confirmation of your condition before agreeing the claim. There is usually one months’ delay before any payment is made, and you will then receive the amount detailed in your policy as one lump sum. This payment is tax free, and once you receive it you can use it for any purpose you want. The benefit is also only paid to living policy holders, so generally speaking the shorter the gap is between a claim and payout the better it is for the holder.
The market for critical life insurance is crowded and competitive, with many policies available to choose from dozens of providers. While you will probably have a good idea of your own needs, and will be able to compare costs using tools like comparison websites, you should always seek independent advice before taking out a policy. An authorised advisor will provide you with a statement that outlines the costs and main points of each policy, and will be able to explain any details or small print as required. They may also have access to a wider range of policies, and may be able to offer good deals on complementary policies like life cover. For more information about critical illness cover or life cover, then visit www.quotelifecover.com
