Lockhart Grey Financial Planning Ltd

A serious illness, such as cancer or heart attack, affects 1 in 4 women and 1 in 5 men before they reach retirement age. Critical illness insurance is designed to ease the financial burden by paying a tax-free lump sum if you become seriously ill or totally disabled.

What Critical Illness covers

Critical illness insurance (CII) pays benefits on the diagnosis of certain specified critical illnesses. The range of diseases covered has increased to more than 30 illnesses, though contracts differ from one company to another.

All policies should cover 7 core conditions: cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. Critical illness policies will also pay out if a policyholder becomes permanently disabled as a result of injury or illness.

But not all conditions are necessarily covered. In May 2003, insurers adopted new rules set by the Association of British Insurers (ABI) that tightened the conditions under which customers could claim on critical illness insurance policies.

These changes mean that policies won’t cover conditions such as non-invasive skin cancers, and less advanced cases of prostate cancer, tumours that have not yet invaded the organ or tissue, and lymphoma or Kaposi’s sarcoma in the presence of HIV are also excluded.  There are also more restrictive conditions for heart attacks. There has to be evidence of typical chest pain, or changes in the electrocardiogram (ECG) for example, if a claim is to be successful. Cardiac conditions, such as angina, will not be covered.

For single people with no dependants, critical illness cover which pays off the mortgage loan is more important than having life cover – as it means you have fewer bills or a lump sum to play with if you are very unwell.

But it can also be useful if you are part of a couple, or if your have children as it provides a welcome financial boost at a time of emotional stress and financial hardship.

The details

Most providers allow people to take out cover between the ages of 17 and 70. It can be for a specified number of years – as long as your mortgage loan, for example – or for life. Or you can just take out a policy and keep it going for as long as you choose. When you buy a policy there will normally be a waiting period – typically three months – before you can make a claim.

If you want to take out cover, you should do it as soon as possible. The rise in claims and the cost of advances in medical technology have led many insurers to cut back on the conditions they cover, or to impose restrictions on what counts as a critical illness, while many have raised premiums by up to 50%. Premiums are expected to continue to rise as medical technology develops.

Getting covered

To take out critical illness cover you will need to complete a proposal form. You will be asked if your parents or other members of your family have suffered major illnesses in the past. If they have, your policy may be rated, which means you will pay higher premiums or will not be covered for certain conditions.

You may need a medical before being accepted for cover, but this does not necessarily mean you will have to pay higher premiums. You pay more if you are a smoker or are seek as a higher medical risk.

Remember to look at the small print as not all illnesses are covered. Some of the most common exclusions include HIV, Aids, drug misuse, self-inflicted injury and certain criminal acts.