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Pros and cons of critical illness

This article is part of
Guide to Critical Illness

The Association of British Insurers’ statement of best practice for critical illness cover, which aims to help consumers understand and compare policies, defines critical illness cover as a policy which includes cancer, heart attack and stroke in the list.

The statement provides model wordings for 23 of the most commonly offered critical conditions and providers which are members of the ABI must use the model wordings or a more favourable definition if they offer that particular cover.

Most providers offer cover for all 23 conditions and additionally cover on average 26 further conditions.

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Ben Heffer, insight analyst for life and protection at Defaqto, says critical illness cover can provide a generous lump sum payment to help people who are seriously ill reduce their financial burden at a vulnerable time.

For example, he says it can be used to pay off a mortgage or loan, make home modifications if necessary, purchase private medical treatments or provide a financial cushion if the breadwinner cannot work for a time.

However, Mr Heffer warns because critical illness pays out only if the client is diagnosed with one of the predefined critical conditions in the policy, there may be circumstances where the insured is too ill to work and support themselves but not eligible for a critical illness benefit.

For this reason, Mr Heffer says it is important not to position critical illness cover as a replacement or alternative to income protection insurance, which pays out if the insured cannot work whatever the cause might be.

As most long-term sickness or disability is due to back problems and mental health issues, which are not covered by critical illness policies, Mr Heffer says a client suffering in this way would not be well served by having critical illness on its own.

Chris McNab, critical illness product manager at LV, says he would always recommend that income protection is considered alongside critical illness as it covers a wide range of illnesses such as musculoskeletal problems and mental illness and provides customers with a regular income.

He says it is important to understand the details of any critical illness policy and points out if it is an accelerated product it also pays out on death.

Mr McNab says the critical illness cover market remains competitive with providers frequently developing new types of products.

He says these products are regularly reviewed and enhanced to ensure customers are getting a good deal.

Mr McNab says: “One of the key reasons behind the evolution of the critical illness market is the continuation of medical advances which in turn improves the chances of surviving a major illness.

“The recent changes and introduction of partial payments are great additions to critical illness cover as it means that a client can now receive a percentage of the sum assured if they are not at the worst stage of an illness.

“With certain providers clients could also receive 200 per cent of the sum assured for certain conditions. Another benefit that critical illness cover often includes is free children’s cover.