What is it?

Critical illness cover is a form of insurance protection which pays out a lump sum if you are diagnosed with one of a specific set of serious illnesses. The illnesses covered are the kind which will have a significant impact on your lifestyle or require it to change and, for example, generally include a heart attack, stroke and debilitating forms of cancer.

The idea of critical illness is that it takes the financial stress away at a time when you might not be able to work for an extended period – or perhaps have to change job to one which pays less money. The plan pays you a lump sum and this can be used to perhaps reduce existing costs, such as your mortgage, or finance changes which might be required to your home. Alternatively, it might simply pay for an extended holiday to aid recuperation.

There are two types of critical illness policy – ‘whole of life’ and ‘term’ cover. As the names suggest, whole of life is designed to cover you for as long as you live whereas term is for a fixed period, usually 10 or 25 years and might be used to tie in with a fixed term liability such as your mortgage.

The conditions covered by critical illness cover remain a huge discussion point in the insurance sector as the small print does vary between providers. The Association of British Insurers (ABI) has moved to ensure some uniformity by publishing a list of 23 definitions of critical illnesses, but there are some insurers around who offer more than this.

As well as the obvious, the ABI list includes Alzheimer’s, blindness, motor neurone disease and kidney failure. However, whilst this might seem straightforward, there are also several conditions which are excluded, or make a claim invalid – for example: drug abuse, Aids and, in some cases, contracting a terminal illness while living abroad. Some types of cancer may also not be covered – and it is therefore very important that you understand exactly what you are getting.

The other main issue to be aware of when buying a policy is whether your rates are guaranteed or subject to review. Guaranteed rates offer a set premium for the life of the policy whereas reviewable rates may be changed from time to time (usually annually) if the provider considers the risk levels they originally assumed have changed.

Sadly, cases do still crop up where the policyholder, having been diagnosed with a serious illness, discovers it is not covered by their policy. Robust, independent financial advice and a willingness to be open about your medical history are therefore a must when applying for this type of cover.

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