Critical illness cover can help ease the burden that serious health conditions place on our finances, but almost three-quarters (73%) of young adults don’t have a critical illness policy. More than half of adults aged 18 to 40 don’t understand what critical illness cover is for, according to research published by Beagle Street and reported in IFA Magazine.

After having it explained to them, however, four in five of those surveyed said they would consider purchasing it. Critical illness cover pays out if you are diagnosed with a specified serious illness or health condition. The money can be used to pay off large financial commitments (like a mortgage), maintain your lifestyle, or provide for dependents.

It’s important to understand how critical illness cover works, so here are the five essential things you need to know before you take out a policy.

1. Critical illness cover pays out a lump sum

Critically illness cover provides a single payment when you become seriously ill. You decide how much you want your cover to pay out and can use the money however you like, but it’s worth taking the time to understand your finances to determine what level of cover is right for you.

You might want to consider regular outgoings, any other assets or financial protection you have, and any costs associated with becoming seriously ill. Because critical illness covers pays out one large sum, you might also want to think about what your priorities might be and the best way to use the money to create long-term financial security.

2. Not all illnesses are covered

Half of those with critical illness cover are unaware of the conditions covered by their policy, according to a report from FT Adviser. The lump sum is typically paid when you’re diagnosed with certain specified illnesses or conditions which vary between providers. A payout might also depend on the severity of your illness, so it’s important to understand how comprehensive your cover is.

There are other options beyond critical illness cover. Income protection, for example, could pay a regular income if you’re unable to work because of an accident and may cover more conditions than critical illness covers.

3. There may be additional exclusions based on your health

Your general and family health at the time you take out critical illness cover can affect the level of protection you receive. For example, pre-existing medical conditions or illnesses that your close family members have been diagnosed with will probably be excluded.

4. The cost of critical illness cover varies

Your age, family medical history, and your lifestyle are just a few factors that can influence the cost of critical illness cover. Prices also vary between providers so shopping around and comparing your options is the best way to secure the right cover at the right price. Make sure you’re comparing like-for-like though – a cheaper policy may not cover everything you want it to.

5. Most critical illness claims are unsuccessful

91% of critical illness claims were paid in 2022 according to data from the Association of British Insurers. It can be tempting to forego critical illness cover on the basis that serious illnesses are comparatively rare, but the evidence shows that its likely to pay out when people need it the most.

Let’s chat about critical illness cover and financial resilience

Critical illness cover is one of many products that can help create a safety net for your family and your finances if you become seriously ill, and there could be other ways of increasing your financial resilience too. We’re here to talk through your options and help you increase financial security for you and your family.

 

 

Please note: Financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. Cover will lapse if premiums are unpaid. Cover is subject to terms and conditions and may have exclusions. The definition of illnesses vary between providers and will be explained in policy documentation.

Approved by The Openwork Partnership on 10/07/2024