Diagnosis of a critical illness, of course, leads to a traumatic and worrying time. For many such sufferers, one of the immediate worries is the very practical financial one of continuing to make ends meet when it might no longer be possible to work – especially if there is also a family or other dependants to think of. Since critical illness insurance is typically designed to help allay some of those financial worries, it might be worth looking briefly at exactly what critical illnesses are covered and how this particular insurance works.
Although it is a naturally quite fundamental question, there is no simple answer since different policies adopt different definitions of a “critical illness”. Before deciding on a particular insurer, therefore, prospective policy holders might want to examine closely the list of specified illnesses. As a general rule, of course, the more restricted the list, the cheaper the premiums are likely to be Critical Illness Insurance. This also means that there is likely to be a policy available to suit most pockets.
Whatever the coverage of critical illnesses, however, it might be noted that most policies exclude certain types of cancer and that some claims might be subject to the insurer’s own medical examination and assessment of the condition or illness.
How does it work?
The principles are simple and straight forward. The policy holder pays a fixed premium each month and, in the event of him or her being diagnosed with a critical illness (as defined by the insurer), a single, tax-free, lump sum benefit is paid out to the policy holder. The way in which such a benefit is spent is entirely up to the policy holder, but might be used to replace lost income from work, to help fund any alterations that might be needed to the current living arrangements for a critically ill patient, or for buying in specialist nursing or health care.
Critical illness insurance provides cover for an agreed term – which might typically be as short as 5 years or longer. Some insurers, however, may offer a greater degree of flexibility by allowing renewable term cover, by which the policy holder is able to renew the policy at various intervals (say, every five or ten years).
Other insurers have options that allow for the insured term to run for the remaining life of a mortgage. In other words, this might be used as an alternative to mortgage life insurance, whereby the risk of being diagnosed with a critical illness is insured for the term of the mortgage and the insured benefit might be calculated with reference to the outstanding mortgage to be paid.