Critical Illness Cover is a type of insurance policy which, during the term of the policy, is intended to pay out a tax-free cash sum if the insured person suffers from one of a number of medical conditions. Critical Illness Cover can be taken out on its own, but is often offered as a combined Life Assurance & Critical Illness policy, typically covering an amount equivalent to the size of the person’s mortgage

Policies vary from one to another in terms of the conditions they cover, but the following form the ‘core’ conditions covered in most policies:

Cancer
Coronary artery by-pass surgery
Heart attack
Kidney failure
Major organ transplant
Multiple sclerosis
Stroke

In addition, and varying from one policy to another, some of these conditions may also be covered:

Aorta graft surgery
Benign brain tumour
Blindness
Coma
Deafness
Heart valve replacement or repair
Loss of limbs
Loss of speech
Motor neurone disease
Paralysis/paraplegia
Parkinson's disease
Terminal illness
Third degree burns

Insurance companies may not cover all these critical illnesses but if they do, the company will use the Association of British Insurers model definitions or alternatives that give more cover.

Full details and definitions of the illnesses/conditions covered should be included in the product literature of any policy. The mortgage monkey strongly recommends that you acquaint yourself with that information before commencing a policy of this type.

Critical Illness cover may also not be available to everyone, due to occupation, health or family history. However, it may still be possible to take out a policy for basic life assurance without critical illness cover.

It’s a fact that personal borrowing in the UK is as high as it’s ever been – even setting aside mortgages, personal borrowing (eg: credit card balances, personal loans, overdrafts, etc.) has topped £200 billion.

This has meant that many of us enjoy a certain standard of living – one that could be shattered if one or other of the incomes coming into a household were to suddenly stop.

Think – would you and your family be able to afford to live in that nice house, enjoy a shopping spree at the sales or change your car every couple of years if even 50% of your household’s income dried up?

Due to advances in medical treatment nowadays, more and more people are surviving what were once thought to be terminal conditions. That said, not all survivors are able to regain their health enough to go back to work, some may even be left with a permanent disability. For example, about 75% of people suffering a stroke in the UK are likely to survive. However, of those survivors, about 60% will be left with a disability.

One of the leading providers of critical illness cover in the UK recently revealed some interesting facts about the average age of claimants on their policies for particular conditions:

· Cancer - Age 42
· Heart Attack - Age 47
· Stroke - Age 44
· Multiple Sclerosis - Age 38
· Heart By-Pass Surgery - Age 49
· Parkinson’s Disease - Age 47

The ‘term’ or period covered by the policy will often be linked to the term of your mortgage, or you may choose to take out a policy to cover you until a planned retirement date. There are two main types of critical illness cover which basically relate to the sum paid out in event of a claim.

Level - This is where the sum paid out remains constant throughout the term of the policy, ie: it will pay out the same amount in the first year as it would in the last year.

Decreasing -This type of policy would typically be taken out to cover a repayment mortgage. The sum paid out would decrease by a certain amount over the term, usually in line with the reduction in the amount of mortgage outstanding.

The premium you pay will depend on two main groups of factors:

The Cover Provided
As with most things in life, you get what you pay for! Naturally, the more comprehensive the cover, the more you’re likely to pay. In addition, if you decide to go with ‘extras’ on your policy (eg: waiver of premium) this will add to the cost. Whether you have level or decreasing cover will also affect the premium.

You
The insurance company will take into account many factors about you when calculating your premium. The starting points will be your age, sex, and whether or not you’re a smoker. These will be taken into account on the original quotation, and along with the cover provided will form the basis of the provider’s ‘standard rate’ (sometimes called ‘ordinary rate’). On the application form, you will also be asked as series of questions about your current and past health (including that of your immediate family), your occupation, lifestyle and leisure pursuits. Depending on the responses to these questions and the outcome of any medical examinations and/or tests (if required by the provider), the provider may accept the policy but with an increased premium.

IMPORTANT – You would be surprised at how many claims on critical illness policies are rejected because something was not disclosed by the claimant when the policy was applied for! However tempting it might be to omit something from your application, either to avoid paying a higher premium, or because you think it too ‘trivial’, The mortgage monkey strongly recommends that you disclose such information – if in doubt, DON’T leave it out! (If there is information of a very sensitive nature, you do have the option to disclose this in writing directly to the provider, and such information will be treated as confidential.)