Critical Illness Cover
Critical illness cover pays out a tax-free lump sum to policyholders if, during the term of the policy, they are diagnosed with one of a number of specified ‘critical’ illnesses or conditions, such as: cancer, Parkinson’s disease, Multiple Sclerosis, paralysis following a heart attack or stroke, or HIV/AIDS as a result of a blood transfusion.
Each Insurance Company has a list of prescribed illnesses and conditions that they offer to policy holders at the outset. These conditions are stipulated in the policy document. Critical illness is, in the first instance, paid out as a living benefit and is usually paid if policyholders survive for a pre-determined period from the date they were first diagnosed with the claimable condition.
The time lag for accepting a claim is normally 15 days after first diagnosis. Some plans build in an extra layer, whereby if the claimant dies up to 30 days after diagnosis the proceeds are not then part of the deceased estate. To achieve this the correct split trust needs to be set up, so that the insurance company can pay the proceeds direct to the appointed beneficiary. These factors should be an important consideration of all policy holders in tandem with estate planning.
Critical illness policies are often combined with general life assurance policies, and can be written for one person or on a ‘joint life’ basis, i.e. for two people. We would usually never recommend a joint policy as a claim will lead to a pay out to one of the lives assured, but then the policy will have ‘matured’ and there will be no cover in place for the second life assured.
There is no investment element to a critical illness policy.
How much CIC do I need?
As always, this depends on your individual circumstances and goals. For example, if you are taking out the policy to ensure your home is protected, you clearly need to have a policy big enough to pay off your mortgage.
However, critical illness payments are often used to convert people’s homes after a serious illness, e.g. the addition of a stair lift, wider doors or a downstairs toilet for ease of access. In these cases we would suggest buying a multiple of your salary-much like Death in Service Cover.
If you are unsure, in any way, you should seek the help of an experienced adviser.
For more information on critical illness cover please contact us 0n 020 8441 2605 or 01442 232 272. Alternatively click here for our enquiry form.