Critical illness cover

Critical illness protection can cover you in the unfortunate event that you become seriously or terminally ill, meaning that you would be unable to work again.

Note that, although it's a different product to life insurance, the two are often sold together.

It's also a different product to income protection, although certain policies can sometimes appear to be very similar.

Typically, critical illness cover would insure you for a fixed amount, for instance £100,000, which is usually paid in a one-off, tax-free payment.

Note, though, that some policies can be arranged that will pay a monthly allowance if you make a successful claim.

The payout should allow you to clear any debts, allowing you to focus on recovering without the extra stress and worry of how you'll make ends meet.

How to buy critical illness protection

If you compare life insurance through Gocompare.com, you'll be asked if you want critical illness cover and - if you say yes - the options are for this cover to be 'integrated' or 'independent'.

Integrated critical illness policies

An integrated critical illness policy means it's combined with your life insurance. This can be cost-effective, but bear in mind that a combined life and critical illness policy will only pay out once.

If the insurer pays out on a specified critical illness claim then the policy would end and there could not be a later life claim.

You need to take particular care with this if you have a joint life insurance policy.

Independent critical illness policies

With an independent critical illness policy you can specify an amount of cover that's independent of the amount of life insurance cover that you choose.

If a claim is made on the critical illness cover during the policy term the critical illness cover will cease.

However, the life cover will remain in place in line with the chosen term of the policy, meaning that it will still be possible to make a further claim on the life cover

Levels of critical insurance cover

How much you should insure yourself for is dependent on your circumstances. It's important to think about the kind of cover you'd need if you became seriously unwell.

For example, would you just want a lump sum to clear your mortgage and any debts, or would you also want a regular payment that lets you maintain your lifestyle?

Obviously, the more cover you need, the pricier the policy.

If you're not sure what's best, remember that you can speak to an impartial adviser at our partner Assured Futures.

Do you need critical illness cover?

Before buying a new policy, it's worth checking whether or not you already have cover as part of an existing life insurance policy. You should also double check your employee's handbook. Some good employers include critical illness cover as well as a death in service benefit.

Even if your employer doesn't offer this benefit, you may just decide that you don't need critical illness cover and that it would be an unnecessary expense. If, for example, you have a partner who could support both of you if you were unable to work, or if you have ample savings, you may decide to save on the premiums by going without.

However, it's worth bearing in mind that the costs of becoming critically ill can be steep. Your partner might need to quit their job in order to care for you, you may need specialist equipment, or even full-time carers. With cover in place, you and your family may have greater financial security if something unexpected hits.

What does critical illness insurance cover?

Your policy will have a specific list of illnesses and conditions which are covered. Anything that doesn't feature on it is not covered.

That means that if you're unlucky enough to contract something not on the list, your policy would not pay out.

All policies cover a specific group of conditions, including cancer, heart attack and organ failure. You'll also usually be covered if you're left with a permanent disability as a result of an illness or accident.

But while all policies have to protect against a group of common critical illnesses, you may find that a cheaper policy doesn't cover as much as a more expensive one. It's up to you to decide whether you'd rather pay a bit more to have a wider insurance policy.

Read the Ts and Cs!

It's vital to read any insurance paperwork carefully; you don't want to find out that something isn't covered only after you make a claim.

But this is especially important with critical illness cover as these policies are often extremely restrictive.

For example, you might not be insured for certain illnesses if the diagnosis is made after you reach a certain age, or if you were already aware of the symptoms before you took out the policy.

You may find you're not covered if you become ill due to a sexually transmitted disease, or experience a disabling accident while taking part in a risky sport like skiing.

Essentially, the right income protection policy should pay out if you're too ill to work (for a short or long period), while critical illness protection pays out if you're diagnosed with a condition that's specifically listed on your policy, meaning you're unlikely to ever return to work.

Typical income protection policies will pay a monthly amount that's related to your regular income, while most critical illness policies offer a one-off lump sum that's not necessarily related to your salary - you decide how much cover you need and, the more you choose, the higher your premium is likely to be.

Critical illness insurance is related to you as an individual, but income protection is tied to your job - if you change occupation, you'll need to inform your insurer and the policy is likely to be adjusted accordingly.

Long-term income protection policies typically start to pay out after a deferred period - usually between four and 52 weeks.

Depending on your terms and conditions, payouts will continue until you return to work or when the policy expires - usually when you reach retirement, or at the end of a fixed period. Note that there are also short-term income protection options available that offer a much lower level of protection.

How to cut the cost of critical illness protection

You can cut the price of critical illness cover in much the same way as you would with life insurance.

Give up smoking, shift any excess weight and adopt a generally healthier lifestyle.

Doing this reduces your risk of making a claim, so the insurer should charge less for your policy.

As noted, buying cover as an integrated policy with life insurance can keep costs low, but you'll only then be eligible for one pay-out.

That is, if a critical illness claim is made, the insurer won't then pay out a life claim.

Finally, of course, whether you're buying an integrated or independent policy, it's a good idea to shop around and compare prices using a service such as Gocompare.com.

By Felicity Hannah