What would happen to you and your family if you develop a life changing illness and can no longer work?
Critical Illness Insurance provides a tax free lump sum payment on diagnosis of a ‘qualifying’ serious illness.
Critical illness insurance is a complex product with exclusions and pay-outs varying greatly from insurer to insurer. Typically all insurers cover illnesses such as cancer, heart attack, stroke, Alzheimer’s and multiple sclerosis.
A comprehensive policy can cover you for over 170 ‘qualifying’ illnesses, a typical one less than 50 so it pays to talk to an adviser to ensure you get the best policy for your budget and health concerns.
Every two minutes someone in the UK is diagnosed with cancer.
Cancer Research UK 2016.
The lump sum can be simply to pay off the mortgage or an amount that’s large enough to generate an ongoing income providing you and your family with a continuing level of financial security.
With the ability to lock in the cost of your monthly premium (guaranteed premiums) when you sign up it’s worth noting that premiums are less when you’re younger, as you’re less of a risk, it’s a very good idea to anticipate your longer term need for Life Insurance and buy it as early in your life as possible.
As an example, if you are 30, a non-smoker and in good health, then a premium of around £50 per month would provide a lump sum amount of £175,000 upon your premature death or diagnosis of a serious illness before the state retirement age of 68.
Knowing you’ve chosen the right protection solution is only achieved if you have received professional advice. There are many Protection providers and each has their own specialisations and exclusions which means policies taken out online or without independent advice are often not paid out.
Lightblue Online was set up to provide specialist help to people unsure how to go about choosing from the many Protection products available. For example, you might not be insured for certain illnesses if the diagnosis is made after you reach a certain age, most policies pay out only once but some will make a small payment if you are diagnosed with a less severe illness, and some insurers cover your children at no extra cost whilst others may not.
Our specialists will help you to navigate all the options to find the cover that is right for you and your family at an affordable rate.
Types of Critical Illness Insurance
Finding the right one out of many types of insurance could be very tricky. Here are the different types of critical illness insurance suited for different needs and eligibilities:
Level Term Critical Illness Insurance
With Level Term Critical Illness insurance an insurer is paid a monthly amount (the premium) to ensure that an ‘agreed amount’ (the benefit) is paid to the insured should they be diagnosed with a serious illness within the agreed number of years that the insurance is in place, called the Term.
Level Term Critical Illness insurance is commonly taken out to provide a guaranteed lump sum amount with guaranteed premiums.
Decreasing Critical Illness Insurance
With Decreasing Term Critical Illness insurance an ‘agreed amount’ (benefit) is chosen which reduces over time. An insurer is paid a monthly amount (the premium) to ensure that the ‘decreasing amount’ is paid to the insured should they be diagnosed with a serious illness within the agreed number of years that the insurance is in place, called the Term.
The amount you pay is fixed throughout the life of the insurance (policy), and the premium level is lower than that of Level Term Critical Illness insurance as a result of the decreasing benefit.
Decreasing life insurance is commonly used to pay off a repayment mortgage, taken out for the same number of years as the mortgage and reducing in line with the outstanding mortgage amount. The benefit should reduce slower than the mortgage debt, ensuring repayment of the mortgage in full. However, there is no guarantee that the level of cover will match the outstanding debt upon a claim.
Increasing Term Critical Illness Insurance
With Increasing Term life insurance an ‘agreed amount’ (benefit) is chosen which increases over time. An insurer is paid a monthly amount (the premium) to ensure that the ‘increasing amount’ is paid to the insured should they be diagnosed with a serious illness within the agreed number of years that the insurance is in place, called the Term.
The ‘agreed amount’ will rise each year by an agreed rate, normally Retail Price Index (RPI) or the Consumer Price Index (CPI). This is called Indexation. As your cover increases so does your premium.
The benefit of selecting indexation is you are protecting the purchasing power of your selected benefit because as time goes by, it’s expected that the cost of living will go up – it’s what’s known as inflation.
Critical Illness with Life Insurance
Most Life Insurance policies have the option of including cover should you be diagnosed with a critical illness. Where life insurance only pays out on a premature death, a Life and Critical Illness policy also pays out the sum assured should you be diagnosed with a number of serious illnesses as defined by the insurer’s terms.
A combined life insurance with critical illness policy would usually pay out on the first event of either death or diagnosis of a serious illness. This type of cover is normally taken out together because the price of a standalone critical illness policy is often exactly the same as a life policy with critical illness cover. This is due to certain insurer tax advantages available for life insurance and the fact that there is much higher chance of suffering a critical illness before death.
It’s also possible to take out a policy that pays on diagnosis of a critical illness and death.
Critical Illness Insurance Options
As with all things the more options you choose the higher the price. Critical illness insurance is no different and different insurers load the options differently. It is therefore important to determine what you need and what you would like so we can find the best Life Insurance policy available to you in the market place. Below are some of those options.
Guaranteed premiums would suggest that what you pay stays the same throughout the policy term unless you increase the required income amount. For some policies this is true, you pay the same amount month after month until the policy ends. For others its guaranteed to increase based on a rate table which means the price you pay in the future for each £1 is guaranteed to go up each year at the rate set out in the guaranteed rate table sent with your policy. You can, therefore, calculate what your premiums will be in the future..
If your premium is not guaranteed then the premiums can change each year due to age or changes to your health. Reviewable policies usually start cheaper than guaranteed policies, but they may end up being more expensive.
Level or Indexed
‘Level’ means that the amount you receive will remain the same throughout the time you have the insurance regardless of whether your income or expenditure increases. Alternatively, the amount you receive can increase each year in line with inflation using either the retail price index or the consumer price index. With some insurers this can be declined on an annual basis.
Waiver of Premium
If Waiver of Premium is selected then when you begin receiving an income from the insurance policy the premiums no longer need to be paid until you return to work or your selected pay-out period is reached.
Most policies require you to survive for a specified period following diagnosis of a critical illness which can range from 10 days to 3 months.
Permanent and Total Disability
This option allows you to claim if an illness or accident leaves you unable to work. Some policies define Permanent Total Disability as being unable to perform any job whilst others define it as being unable to continue in your previous occupation.
Most policies pay out only once. However, a number of insurers will make a small payment if you are diagnosed with a less serious illness. The policy continues allowing a further claim if you were diagnosed with a further serious illness.
Cover Increase options
The ability to change cover often without further medical information if your situation changes. Policies vary but some examples are: marriage, divorce, increased mortgage amount, birth or adoption of a child, salary increase.
With Life Insurance
A combined life insurance with critical illness policy would usually pay out on the first event of either death or diagnosis of a serious illness. This type of cover is normally taken out together because the price of a standalone critical illness policy is often exactly the same as a life policy with critical illness cover. This is due to certain insurer tax advantages available for life insurance and the fact that there is much higher chance of suffering a critical illness before death. It’s also possible to take out a policy that pays on diagnosis of a critical illness and death.
Some policies include paying out an additional lump sum if any of your children are diagnosed with a critical illness or die during the policy term.
Child Accident Hospitalisation Cover
With this cover a special payment is made if a child is admitted to hospital with physical injuries for a minimum number of consecutive days, immediately following an accident.
A special payment paid alongside a claim for critical illness where the insured person has a natural child, legally adopted child or step-child under 5 years old.