| Critical illness insurance |
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Contracting a critical illness comes with hundreds more variables than the two that apply to life insurance (namely alive or dead!). That’s why it is a more complex product and – especially if you are older or in ill-health – can be very expensive to buy.
How does it work?Each insurer will have a varying number of critical illnesses or conditions that it will cover. However, there are seven ‘core conditions’ set down by the Association of British Insurers (ABI) as a minimum requirement. In the form of a rather depressing list they read as follows:
Again, you will choose your sum assured according to the size of your mortgage and other financial commitments, your salary and dependants. If you contract one of the policy’s listed diseases you will receive a lump sum. This is tax-free, although if you choose to invest all or part of the money to turn it into an income taxes may then be incurred. If you keep it as one lump sum inheritance tax may also be applicable when you die.
How is my premium calculated?It is more difficult for insurers to calculate premiums for critical illness, as there are many variables. However, your age, gender, family medical history and if you are a smoker are some factors that will be assessed. Critical illness cover is relatively cheap for young people but can become expensive the older you become – especially if you are considered high risk.
What types of deals are out there?As with life insurance, you can opt for level term – which means the payment amount doesn’t change – or decreasing term, which means the payout decreases in line with your mortgage. Most critical illness policies have life cover thrown in. But they will only pay out once on whichever event happens first – illness or death. Cover will also typically extend to your children, but it is vital that you read the small print to ensure this.
In fact – especially with an insurance policy that carries so many variables – it is imperative to read and fully understand all of the policy’s small print. It may be that something you consider to be a critical illness is not seen that way by the insurer. With a heart attack, for example, many insurers stipulate that a part of your heart has to actually die before it constitutes a critical illness. Other conditions, such as HIV and AIDS, drug abuse, self-inflicted injury, criminal acts or contracting an illness when living abroad are excluded from most standard policies.
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