Best Critical Illness Insurance: What you need to know before getting insurance coverage

While insurance for cars, homes, cell phones, and even lives is common, the majority of us will have nothing to pay the bills if we become unable to work due to illness or injury.

However, it is likely that one in five of us will suffer from a serious illness before retirement.

This is where critical illness coverage can help – it’s a type of insurance that will pay you a lump sum without money if you are diagnosed with a critical illness.

It is sometimes sold along with a life insurance policy, but don’t confuse the two – they are completely different and protect you from different possibilities.

Although it seems obvious, there are a few pitfalls you need to watch out for when taking this type of hood out.

This is Money has put this guide together to help you through the maze of critical illness insurance.

How is the critical illness cover different?

There are many different types of protection insurance, and it can be easy to confuse them.

Although on the surface it may seem like serious illness, income protection, and life insurance all do similar things, in reality these products are designed to suit different needs and different people.

As such, it’s important to do your research to find out exactly what kind of cover is right for you—otherwise you could be in for a nasty surprise when it comes time to claim.

In short, serious illness pays off when you are diagnosed or undergo treatment for a specific condition.

You will receive a tax-free lump sum to cover medical costs and to replace income you will lose because you are unable to work.

Life insurance is paid out upon your death, leaving a lump sum amount for your family to settle the debt. Income protection is similar to critical illness coverage, but it provides a monthly income stream instead of a liquidated payout.

>> Read this money guide to life insurance and income protection

What are the different types of critical illness policy?

There are several different types of critical illness policies, and they all do slightly different things.

For example, with what’s known as an “increasing” cap, you could get increases each year to keep up with inflation. This means that it is usually related to the retail price index, or increases by a certain amount each year.

On the other hand, critical illness “reduce” coverage, sometimes known as mortgage critical illness coverage, is designed so that the payments you get can decrease over time as you pay off your mortgage.

This means that if you become seriously ill, you will have enough to pay off your mortgage debt, but nothing more. As a result, premiums for this type of coverage are lower than for standard coverage.

Keep in mind that with this type of insurance you will have nothing left after paying off your mortgage to pay for treatment or settle other bills.

When deciding which type of policy is right for you, you must remember at every step of the process that if you die, your family will not receive compensation. You will also need life insurance for this.

You can get joint life insurance and critical illness coverage. This is cheaper than having separate policies, but it does mean that you will only get one benefit—either when you become seriously ill or if you die.

And with all cases of critical illness coverage, illness does not in and of itself guarantee a payout. Critical illness pays only if you are diagnosed with an illness specifically covered by your policy.

Each policy will come with a list of what is and is not covered. If you become ill with a condition that is not on the list, you will not get paid.

As you might expect, policies that are more comprehensive tend to be more expensive, while policies that cover less tend to be cheaper.

Is it the same as “end benefit”?

When selling life insurance, some providers will offer what is known as an “ultimate benefit.”

This means that if you are diagnosed with a terminal illness, you will get your life insurance payments early, so you can put your affairs in order on your own before you die.

However, this is different from critical illness coverage, where you will only get reimbursed if you are given a set amount of time left to live.

I’ve been sick before, will they accept me?

When you create a new policy, the insurance company will ask for all of your family’s medical history, whether you smoke and how much you drink, your age, height, and other personal details.

Don’t be tempted to bend the truth at this point. If you do, your insurance company can use that to eventually deny any claim you make.

Pre-existing conditions such as cancer can make things more complicated but that doesn’t mean getting cover is impossible.

Unfortunately, having this type of medical history may limit your choice of provider and mean your monthly premiums will be higher.

How much does it cost?

As with all types of insurance, your premium is calculated by taking into account both the size of your payout if you claim, and the likelihood that you will file the claim in the first place.

So, of course, the bigger the potential compensation pot, the more it will cost each month.

Then there is the possibility that you will be prompted. This will take into account the comprehensiveness of your policy and your general health.

Policies that cover more diseases increase your risk of making a claim because the net terms covered by your policy are wider. On the flip side, if you smoke and never exercise, you’re more likely to get sick in general — so your premium will be higher.

Having a family history of certain types of genetic diseases may mean your risk of claiming is higher, so expect to pay a bit more if this is the case.

In short, all of the things that make your policy unique—the size of the payout, the length of the policy, and the type of coverage—determine your monthly premium.

According to Drewberry Insurance, a 25-year-old non-smoker can expect to pay around £28 a month for a combined standard of living and critical illness policy, while a 40-year-old smoker can expect to pay around £74 a month.

Are they really going to pay me when I need it?

The way critical illness is designed means that you are unlikely to actually be paid unless you are disabled or unwell—and then only if your condition is specified in the policy documents.

The last thing you want after suffering a life-altering injury or illness is to then find out that you are not covered by what you thought you were.

There are plenty of stories highlighting insurers who have been able to get rid of this type of claim, and while this is happening, it’s important to remember that this is a minority of cases.

Last year, insurers paid out £13.9m a day for income protection, critical illness cover and life insurance, according to the Confederation of British Insurers.

About 92.2 percent of all critical illness claims filed in 2018 were paid—higher than income protection, of which only 87.2 percent were paid, but lower than life insurance, where 98 percent of all claims were paid.

It’s up to you to decide if you think critical illness insurance is right for you, and also how comprehensive you want your policy to be.

It may seem daunting at first, but a good broker can help.

If you’re not sure, you can go to the source – the Association of British Insurers has ‘Minimum Standards’ and ‘Best Practice’ guides, both of which you can find here and here respectively.

While this isn’t exactly a simple read, it can be a useful tool. You can compare policy wording to industry standards to see if the policy you are about to buy is up to scratch.

You can go to the Association of British Insurance Brokers to find a broker. Alternatively, you can find an independent financial advisor by clicking here.