Critical illness insurance - what is it?

According to the International Agency for Research on Cancer, based on WHO estimates for 2019, cancer or cardiovascular disease was the leading cause of premature death (at ages 30-70) in 127 of 183 countries, and cancer was the leading cause in 57 of them. A serious illness can also have financial consequences, and insurance can help with those. Below we look at how critical illness insurance, known in the UK as Critical Illness Cover (CIC), works and when it is worth considering.

Critical illness insurance - what is it?

We must point out at the outset - critical illness cover does not replace life cover, it complements it. With a critical illness policy, you will only receive a benefit when you are diagnosed with a specific illness, whereas a life cover policy is activated when you die. It is worth having both products, but be aware of the fundamental difference that exists between them.

In the simplest terms, critical illness cover is a product that protects you against the loss of your livelihood due to the diagnosis of an illness included in the insurance policy’s schedule. If you are diagnosed with a condition covered by your policy and your diagnosis meets the policy’s definition (including any survival period), the insurer pays a one-off lump sum. After a cancer diagnosis or a stroke, you may not be able to work, and without cover or savings, losing your income can cause serious financial difficulty.

Importantly, insurers such as Legal & General say you can use the payout however you wish - for example, for childcare costs, household bills or to maintain your standard of living while you recover.

How is a critical illness claim paid?

In order to receive funds, you must submit a claim for payment of benefits (an insurance claim). The claim must include the necessary medical documentation - the more information about the course of the condition the better. If your condition meets the policy definition and the information you gave when applying was accurate, the claim should be paid.

How long a claim takes varies by insurer and depends mainly on how quickly medical evidence is obtained; the process can be delayed if there are errors or omissions in the documentation. This means that it is still worth having at least a modest amount of savings prepared for a rainy day.

Types of critical illness insurance in the UK

Critical illness cover is taken out by adults, but some policies automatically include children’s critical illness cover at no extra cost. There are also differences between the policies in terms of the cover itself - basic policies cover fewer conditions.

As a general rule, critical illness insurance covers a group of common illnesses - almost all policies cover cancer, heart attack and stroke, although a claim is paid only if the diagnosis meets the policy’s definition. More comprehensive policies may cover more conditions, or pay a partial benefit for less severe diagnoses, such as some early-stage cancers. When choosing critical illness cover with an insurance adviser from Extend Finance, pay attention to the diseases that are covered.

It also happens that critical illness insurance in the UK is an add-on to a life insurance policy. A combined policy pays out on a valid critical illness claim or on death. Check with an adviser whether the cover ends after the first payout, and compare this with taking out two separate policies.

What conditions, among others, fall under critical illness cover?

There are dozens of serious medical conditions and their complications on the list (depending on the insurer and the package chosen). Cancer, heart attack and stroke are covered as standard. Policies also commonly include conditions such as:

• Alzheimer’s disease;

• Multiple sclerosis;

• Kidney failure;

• Parkinson’s disease;

• Loss of sight;

• Hearing loss.

Some policies also cover, for example, loss of a hand or foot, severe third-degree burns or a major organ transplant.

When is it worth buying critical illness insurance?

In principle, this is whenever you are concerned about the onset of a serious illness, but especially so if you have a family. Your main ongoing obligation is to pay the premium. When you apply, you must also answer the insurer’s questions honestly and with reasonable care, because inaccurate answers can affect a later claim. The amounts do not have to be large, although they depend on a number of factors, such as:

• Age;

• Occupation;

• Past medical history;

• Smoking;

• BMI.

Your age, smoking status, weight, health and job can all affect the premium, so smokers and people with a high BMI may pay more. Cover is generally available to adults, subject to the insurer’s maximum age at the start of the policy and its underwriting. Premiums are generally higher the older you are when you apply, reflecting the higher risk of illness.

It is usually better to apply while you are in good health. If you have already been diagnosed with a condition, an insurer may exclude it from the cover, charge a higher premium or decline to offer critical illness cover, which matters for anyone who has had cancer.

How do I choose the right critical illness policy in the UK?

No critical illness policy covers every medical condition, and the list and definitions differ between insurers. When choosing a policy for yourself, you should always analyse a number of quotes and it is definitely worth taking specialist advice when doing so.

Our insurance advice is free. We can discuss your circumstances, compare suitable cover and explain the premiums, exclusions and policy definitions before you decide.