Critical Illness Cover
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Critical Illness Protection Frequently Asked Questions
Richard Campo from Rose Capital joins us to talk to us about Critical Illness Cover.
What is critical illness cover and what is covered by this insurance?
Talking about insurance often results in quite negative conversations. But the story of critical illness cover I find quite fascinating. In the 1980s there was a South African cardiovascular surgeon called Marius Barnard whose brother actually conducted the first ever heart transplant.
Marius did a lot of research and found that more and more people were surviving major medical traumas that in earlier times they would have died from. He noticed that the financial implications of these serious illnesses were really damaging his patients. So he got together with some leading insurers in South Africa and launched critical illness cover as we know it in the UK.
Statistics show that 46% of all home repossessions in Canada are due to people surviving medical traumas. It’s called critical illness because these are serious illnesses that may not kill you any more, but they will have a very big impact on your life.
Maybe you’re off work for a period of time, or you could become disabled. It’s quite pretty serious stuff. This is where critical illness steps in. It covers 28 core illnesses with the ‘big four’ being heart attack, cancer*, stroke and multiple sclerosis.
Depending on the insurer, those four conditions represent between 80% to 85% of all claims. So if you’re diagnosed with one of the 28 conditions, you’ll be paid a lump sum of money. That could pay for your mortgage, or help you get private healthcare or whatever you need.
So the key point I wanted to make is that this isn’t a type of insurance invented by a grey man in a grey suit, wondering how to make money – it’s quite the opposite.
*Please note: critical illness cover does not cover all types of cancer.
How does critical illness cover differ from life insurance?
Let’s be blunt: if you die, critical illness cover doesn’t pay out. That’s not what it’s designed for. If you only had critical illness cover, and you die, your family might be left with a mortgage to pay. Listen to the life insurance episode for more details.
Instead, critical illness cover pays out a lump sum on diagnosis of one of those 28 conditions. With that money – the ‘sum assured’ – you have a financial safety net.
The reality is that this is a slightly more expensive type of cover. That’s because sadly one in two people will get cancer before they die – so it’s relatively expensive because the probability of you claiming is high.
Because of that, we often find covering the entire mortgage can be a push, particularly for some of the bigger mortgages we work with. Instead we’ll often ask about the maximum you can afford, or the minimum amount you could use.
A really good ‘finger in the air’ is a year’s salary. Because the lump sum is tax free, it will probably last two years. But the amount you need will depend on your situation. You might have children with other needs.
I’m a big believer that something is better than nothing – even if it’s a very modest sum it could make a huge difference when you need it.
Who is critical illness cover for? Is it worth having?
It’s for everyone. Obviously we’re a mortgage broker so we focus on the mortgage. But that’s not just what it’s about. You could be renting a home and still need this. I can’t see a situation where getting a big cheque would be a bad thing if you’re seriously ill.
Something I’ve seen happen before is that people receive treatment, recover and get back to work in quite a short space of time. In that case you can use the claim money for a nice holiday and relax.
Rehabilitation is a massive factor and one of the reasons why people do fall back into ill health is because they have to go back to work too quickly and don’t get the time to recover.
So even if you could take three or six months off, that will be better for you. I just can’t see a situation where it’s not a good thing.
The trend unfortunately at the moment is that the NHS is covering less and less. In the UK for example, they don’t give certain medications. They don’t do certain operations or certain treatments so people have to go abroad, typically to America, for these. That’s another reason why it’s worth having – it just gives you more options.
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Can you combine life insurance and critical illness cover?
You can. This can be where it starts getting very technical and there’s lots of horrible jargon I don’t like using. To keep it simple, you can have a joint policy of life and critical illness cover.
You can also have a joint cover with your partner, because a lot of people typically buy protection with someone else. They often involve something called a ‘first event basis.’
When combining these policies, if you’re covering a mortgage it’s simple. If you die or have a critical illness, the policy pays out and clears the mortgage and then it’s done and dusted. But you do need to think about what else needs to happen, because after that point you’re probably not insurable.
You might want separate cover for other things in the future as well – children or dependents for examples. It does get a little bit technical to make sure the right thing happens at the right time but any good advisor will talk you through it. Sometimes having a separate life and critical illness policy can work out cheaper as well.
That’s a vague answer, which I appreciate, but it’s very specific to the individual. You can combine them, but it could be beneficial to split them out. Any good adviser will talk you through the details for you specifically.
What are the costs for critical illness cover?
Our approach is the same with any form of protection: it’s your choice. We won’t put a package together that you can’t afford.
If you put something in place and then decide it’s too expensive, you lose all the benefit of having it. So there’s no point doing something that’s too expensive. We will explore what you can afford and what’s most relevant to you.
A good starting point is to allow 10% of your mortgage payments as a budget for this. You can cover most things including critical illness, life cover and other bits and pieces as well.
What else do we need to consider on critical illness cover?
Three quick points to close on. The first point is that this is very complicated – I’ve desperately tried to keep this straightforward today and lots of providers pay out for different things in different ways. It’s a modern problem: we have more options than ever before, which is great, but it makes things complicated. That’s why a good advisor is really helpful in figuring out your priorities.
The second point is that not all insurers are the same. We look at claim statistics, what they are like in terms of rehab, and what additional benefits they provide as well. Just choosing cover on a price-driven exercise often means you don’t get the best outcome. A provider that’s maybe £1 or £2 more expensive could provide a whole bunch of benefits you can really use.
Finally, these additional benefits are very helpful. They might give you rewards for being fit, active and healthy. You can get discounted gym memberships or proportional payments. They offer access to private GP appointments you wouldn’t get elsewhere. Often the additional benefits in the policy actually pay for the cover itself.
So don’t just look at the headline cost, look at the total package – because it is complicated. Work with us to talk you through it. We want to get you a good outcome with insurance that will look after you and be cost efficient. Ultimately you could even save money through this process.