Critical Illness Cover Guide
Understanding Critical Illness Cover and the Financial Impact of Serious Illness
Life insurance considers what happens financially if you die.
But what happens if you survive a serious illness?
A diagnosis such as cancer, a heart attack or stroke can have consequences that extend far beyond the medical condition itself. You may need time away from work, your partner may reduce their working hours to support you, household income could fall and additional expenses may arise at exactly the time when financial pressure is least welcome.
Critical illness cover is designed to provide financial support following the diagnosis of specified serious illnesses or medical conditions, provided the policy's definition and other claim requirements are met.
The money could potentially be used to reduce a mortgage, replace lost income, fund adaptations or simply provide greater financial flexibility while you concentrate on your health and recovery.
This guide explains how critical illness cover works, what it can protect against and some of the important considerations when arranging cover.
What Is Critical Illness Cover?
Critical illness cover is a type of protection insurance.
It is designed to pay a benefit if the person insured is diagnosed with one of the conditions covered by the policy and meets the insurer's definition for that condition.
Unlike life insurance, you do not necessarily need to die for a claim to be made.
The purpose is to provide financial support while you are alive and dealing with the consequences of a serious illness.
What Conditions Does Critical Illness Cover?
The conditions covered depend on the insurer and policy.
Policies commonly provide protection for specified serious medical conditions, but simply having a particular diagnosis does not automatically mean a claim will be payable.
The condition must meet the definition contained within the policy.
This distinction is extremely important.
Two policies can both say that they cover a particular illness while having different definitions, additional conditions or benefit structures.
The policy wording should therefore be considered rather than simply counting the number of conditions advertised.
Why Do Policy Definitions Matter?
Critical illness insurance is based on specific medical definitions.
For example, a policy may cover a particular type or severity of medical condition rather than every possible diagnosis falling under a broad medical category.
Whether a claim is payable depends on the policy terms and the medical circumstances.
This is one reason comparing critical illness policies solely by price or by the number of conditions listed can be misleading.
The quality and scope of the definitions can matter considerably.
Critical Illness Cover and Cancer
Cancer is one of the conditions commonly associated with critical illness insurance.
However, cancer is not one single disease, and policies do not necessarily cover every cancer diagnosis in exactly the same way.
Some policies may also provide different levels of benefit for certain less advanced conditions, depending on their terms.
The exact definition and benefit should therefore be checked carefully.
A policy should never be described simply as covering "all cancer."
Critical Illness Cover and a Mortgage
A mortgage can continue even if illness prevents you from working.
If a valid critical illness claim results in a lump-sum payment, the money could potentially be used to repay or reduce the mortgage.
Reducing mortgage debt could significantly lower a household's monthly financial commitments during recovery.
However, protecting the mortgage is only one possible use of critical illness cover.
Serious Illness Can Affect More Than the Mortgage
Imagine that somebody becomes seriously ill and is unable to work for an extended period.
The mortgage may still need to be paid, but so do:
utilities;
food;
childcare;
transport;
insurance;
other debts; and
everyday household expenses.
There could also be additional costs associated with the illness.
This is why simply matching critical illness cover to a mortgage balance may not always address the entire financial risk.
What Can a Critical Illness Payment Be Used For?
Subject to the policy paying a valid claim, the benefit is generally designed to provide financial flexibility.
Depending on individual circumstances, money could potentially be used to:
repay or reduce a mortgage;
repay other debts;
replace lost income;
cover household bills;
fund private treatment or rehabilitation;
adapt a home;
pay for additional childcare;
replace a vehicle;
support a partner who reduces working hours; or
create a financial reserve during recovery.
The appropriate amount of cover depends on what you would want the money to achieve.
Critical Illness Cover Is Not Just for Homeowners
Like life insurance, critical illness cover is not exclusively a mortgage product.
Someone renting a property can still experience significant financial consequences following serious illness.
Rent, household bills and other commitments continue.
If income reduces, the absence of a mortgage does not remove the financial problem.
Protection should therefore be considered around your financial responsibilities rather than simply whether you own a property.
How Much Critical Illness Cover Do I Need?
There is no universal amount.
The starting point should be the financial impact you are trying to protect against.
Consider questions such as:
Would you want the mortgage repaid?
Would reducing the mortgage be sufficient?
What other debts exist?
How much income could be lost?
How long could savings support the household?
Do you receive employer sick pay?
Does your partner rely on your income?
Do you have children?
Could childcare costs change?
Would your home potentially need adapting?
What protection do you already have?
Budget will also influence the amount of cover that can realistically be arranged.
Full Mortgage Cover vs Partial Cover
Some people may want enough critical illness cover to repay the entire mortgage.
For others, that may be unaffordable or unnecessary.
Partial cover could still make a significant financial difference.
For example, a benefit that reduces rather than completely repays the mortgage could lower future monthly payments and provide greater flexibility.
Protection does not have to be an all-or-nothing decision.
The objective is to understand the risk and establish an appropriate and affordable solution.
Level Critical Illness Cover
With level cover, the amount insured generally remains the same throughout the policy term, subject to the policy conditions.
This can be useful where you want a fixed amount of protection regardless of whether a mortgage balance reduces.
It may also be considered where the protection need extends beyond the mortgage itself.
Decreasing Critical Illness Cover
Decreasing cover is designed so that the amount insured reduces during the policy term.
It is commonly associated with repayment mortgage protection because the mortgage balance should also reduce if repayments are maintained.
The policy benefit and mortgage balance will not necessarily decrease in exactly the same way.
The policy terms should therefore be understood carefully.
Indexed Critical Illness Cover
Some policies allow the amount of cover to increase over time.
The purpose is to help the protection retain its value as living costs rise.
Depending on the policy, increases may be linked to an inflation measure or another mechanism specified by the insurer.
Premiums can also increase as cover increases.
Standalone Critical Illness Cover
Critical illness cover can sometimes be arranged as a standalone policy.
This means the policy is primarily designed around the critical illness benefit rather than being combined with life insurance.
Whether this is appropriate depends on individual circumstances and the options available.
Life and Critical Illness Cover Together
Critical illness cover is commonly arranged alongside life insurance.
The exact way combined policies operate is important.
Depending on the policy structure, a successful critical illness claim may reduce or end the remaining life cover.
Other structures may operate differently.
The policy terms should therefore be understood rather than assuming that one amount of cover will automatically be paid once for critical illness and then again for death.
Life Insurance and Critical Illness Cover Protect Against Different Risks
Life insurance primarily considers:
What happens financially if I die?
Critical illness cover considers:
What happens financially if I survive a serious illness covered by the policy?
These can create very different financial circumstances.
A person surviving a serious illness may continue to have financial commitments for decades.
They may also face reduced earnings or additional expenses.
This is why critical illness protection can be relevant even where substantial life insurance already exists.
Critical Illness Cover vs Income Protection
These are also different types of protection.
Critical illness cover generally pays a benefit following diagnosis of a specified condition that meets the policy definition.
Income protection is designed to provide an income if illness or injury prevents you from working and you satisfy the policy's definition of incapacity.
This means someone could potentially be unable to work because of a condition that does not meet the definition required for a critical illness claim.
Conversely, a critical illness policy could potentially pay following a covered diagnosis even where the person's circumstances do not create a long-term income protection claim.
The two types of policy address different risks.
Why Income Protection Can Still Matter
A critical illness policy cannot cover every possible reason somebody might be unable to work.
People can be absent from work because of illnesses or injuries that do not fall within a critical illness policy's specified conditions.
Income protection can therefore complement critical illness cover by addressing the broader risk of being unable to work.
Protection planning often involves considering how different policies work together rather than expecting one product to solve every financial problem.
Children's Critical Illness Cover
Some protection policies may include or offer children's critical illness benefits.
The precise cover varies considerably between insurers.
The financial impact of a seriously ill child can affect parents even though the child does not earn an income.
A parent might need to:
reduce working hours;
take extended leave;
travel for treatment;
pay for accommodation;
arrange additional childcare for siblings; or
make changes to the family home.
Children's cover should therefore be considered in terms of the financial impact on the household.
Enhanced or Additional Critical Illness Benefits
Critical illness policies have evolved considerably.
Some insurers may offer additional benefits for certain conditions or circumstances.
These can differ significantly between providers.
A policy might contain:
core critical illness benefits;
additional condition benefits;
children's benefits;
support services; or
other policy features.
The existence of additional features does not automatically make one policy more appropriate than another.
The relevance of those features to the individual should be considered.
What Is Underwriting?
Underwriting is the insurer's process for assessing an application.
The insurer may ask about:
current health;
previous medical conditions;
medication;
investigations;
family medical history;
occupation;
smoking or nicotine use;
lifestyle; and
other relevant circumstances.
The insurer uses this information to determine whether it can provide cover and on what terms.
What Can Happen After Underwriting?
Depending on the application, an insurer might:
offer standard terms;
offer cover with an increased premium;
apply particular exclusions or amended terms where relevant;
request additional medical evidence;
postpone consideration; or
decline the application.
Different insurers can assess medical circumstances differently.
This is one reason underwriting can be an important part of protection advice.
Do I Need a Medical Examination?
Not necessarily.
Many applications can be assessed from the information provided during the application.
Depending on the amount of cover, age, medical history and insurer requirements, additional medical evidence may be requested.
This could involve further information from a medical professional or another form of assessment.
A request for medical information does not itself mean the application will be declined.
Why Accurate Medical Disclosure Matters
Protection applications should be completed accurately.
The insurer is relying on the information provided when deciding whether and on what terms to offer cover.
Incorrect or incomplete information can affect a future claim.
If you are unsure about an answer, it is better to obtain clarification than to guess.
The purpose of underwriting is to ensure that the insurer understands the risk it is agreeing to cover.
What If I Already Have a Medical Condition?
Having an existing medical condition does not automatically mean critical illness cover is unavailable.
The outcome depends on:
the medical condition;
severity;
treatment;
medical history;
current health;
insurer; and
cover being requested.
Different insurers can have different underwriting approaches.
Possible outcomes can therefore vary.
What If a Condition Is Excluded?
Where a policy contains an exclusion, it is important to understand exactly what that exclusion means.
You should not assume that an insurance policy covers every possible illness simply because it is described as critical illness insurance.
Any special terms offered by the insurer should be understood before accepting the policy.
Does My Family Medical History Matter?
Potentially.
Insurers may ask about certain medical conditions experienced by close family members.
This information can form part of the underwriting assessment.
The questions should be answered according to the insurer's wording and as accurately as possible.
Does Smoking Matter?
It can.
Smoking and certain forms of nicotine use can affect protection premiums and underwriting.
Insurer definitions can vary.
Applicants should therefore answer the questions asked rather than making assumptions about whether they are considered a smoker.
Does My Occupation Matter?
Potentially.
Some occupations involve greater risks than others.
Occupation can therefore form part of the insurer's assessment.
This can be particularly relevant when protection planning also includes income protection.
What Is a Survival Period?
Some critical illness policies require the insured person to survive for a specified period after meeting the definition of a covered condition before the benefit becomes payable.
The exact requirement depends on the policy.
This is another example of why the detailed policy terms matter.
What Happens After a Full Critical Illness Claim?
This depends on the policy.
Where a policy pays its full insured benefit following a valid critical illness claim, some or all of the relevant cover may end.
For combined life and critical illness policies, the effect on any remaining life cover depends on how the policy has been structured.
This should be understood when arranging the cover.
Can I Claim More Than Once?
It depends on the policy and the type of benefit.
Some policies may contain additional or partial benefits that operate differently from the main insured amount.
However, a policy should not be assumed to provide unlimited claims.
The policy wording determines what can be claimed, how much can be paid and what happens to the remaining cover afterwards.
Should I Replace Existing Critical Illness Cover?
Not automatically.
Older policies may contain definitions, terms or benefits that are valuable.
Your health may also have changed since the policy was originally arranged.
Replacing an existing policy means going through underwriting again.
A new insurer could:
charge more;
apply different terms;
exclude something;
postpone cover; or
decline the application.
Existing cover should therefore be reviewed carefully before it is cancelled.
Never Cancel Existing Cover Too Early
If you are replacing an existing protection policy, do not cancel it simply because a new application has been submitted.
An application is not the same as accepted cover.
The new insurer may request further medical information or offer different terms.
Existing protection should normally remain in place until the replacement policy has been accepted, started and the implications of changing cover are understood.
Employer Benefits and Critical Illness
Some employers provide benefits that can help during illness.
These might include:
sick pay;
group income protection;
private medical insurance; or
other employee benefits.
These should be considered when assessing personal protection needs.
However, employer benefits can change if employment changes.
It is therefore useful to understand exactly what you have rather than simply assuming your employer will provide sufficient support.
Critical Illness Cover for Self-Employed People
For somebody who is self-employed, serious illness can create an immediate business and personal financial problem.
There may be no employer sick-pay package.
Income could reduce significantly while business and household expenses continue.
Critical illness cover may therefore form one part of a wider protection strategy that could also include income protection and business protection.
Critical Illness Cover for Business Owners
Business owners can have protection needs at both personal and business level.
A serious illness could affect:
personal income;
business revenue;
employees;
loan commitments;
ownership arrangements; and
the future operation of the company.
Personal critical illness cover addresses personal financial needs.
Separate business protection arrangements may be appropriate for risks relating to the company itself.
Affordability Matters
The ideal protection plan on paper is not useful if the premiums cannot be maintained.
Protection should therefore be designed around both need and affordability.
Where the budget does not allow every potential risk to be covered fully, priorities can be established.
For example, it may be possible to consider:
different amounts of cover;
different policy terms;
different policy structures; or
a combination of protection products.
Having some appropriate protection can be very different from having none simply because the maximum desired level was unaffordable.
Review Protection as Your Life Changes
Critical illness needs can change over time.
A review can be particularly relevant after:
buying a property;
moving home;
increasing a mortgage;
having children;
marriage;
separation;
changing employment;
becoming self-employed;
starting a business;
significant income changes; or
taking on additional financial commitments.
Protection should reflect your current circumstances rather than circumstances from many years ago.
The Critical Illness Cover Process
1. Identify the Financial Risk
Consider what would happen financially if serious illness affected your ability to work or your household finances.
2. Review Existing Protection
Check personal policies, employer benefits, savings and other available resources.
3. Establish Your Priorities
Consider whether the main objective is mortgage protection, family protection, financial flexibility or a combination.
4. Consider the Amount of Cover
Assess debts, income, dependants, savings and likely financial commitments.
5. Consider the Policy Term
Think about how long the financial risk is expected to remain.
6. Research Appropriate Policies
Insurer definitions, features, benefits, underwriting and premiums can be compared.
7. Complete the Application
Health, lifestyle, occupation and other questions are answered accurately.
8. Underwriting
The insurer assesses the application and may request additional information.
9. Review the Terms Offered
Any premium changes, special terms and policy conditions should be understood.
10. Put the Cover in Place
Once accepted and started, the policy operates according to its terms and conditions.
Critical Illness Cover Checklist
When considering critical illness protection, think about:
mortgage balance;
other debts;
monthly household expenses;
personal income;
partner's income;
children and other dependants;
savings;
employer sick pay;
existing protection;
amount of cover required;
policy term;
level or decreasing cover;
inflation;
children's cover;
policy definitions;
additional benefits;
affordability; and
how critical illness cover works alongside life insurance and income protection.
The objective is not simply to insure against a list of illnesses.
It is to understand what serious illness could mean financially and decide how much of that risk you want to protect.
Speak to Cambs Ely Mortgages About Critical Illness Cover
Whether you're arranging a mortgage, starting a family, reviewing existing policies or simply want to understand how your finances could be affected by serious illness, we can discuss your circumstances and protection priorities.
We can consider your mortgage, household income, dependants, existing policies, employer benefits and budget before discussing suitable protection options.
Cambs Ely Mortgages provides mortgage and protection advice to clients in Ely, Cambridge, Cambridgeshire and across England, with remote appointments available.
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Important Information
The information contained in this guide is intended for general educational purposes and does not constitute personalised financial, insurance, medical, legal or tax advice.
Critical illness policies do not cover every illness or diagnosis. A claim is subject to the terms, conditions and definitions contained within the individual policy.
The illnesses covered, definitions, additional benefits, exclusions, underwriting decisions, premiums and policy features vary between insurers and policies.
Do not cancel existing protection until any replacement cover has been accepted, is in force and you understand the consequences of replacing the existing policy.