In the latest in instalment in our series on protecting your mortgage, Hatice Karadal, manager of the protection team at mortgage intermediary Alexander Hall, provides the lowdown on critical illness cover
Critical illness cover is designed to help you financially if you are diagnosed with a life-changing condition.
The policy pays out a tax-free lump sum to help you deal with the associated costs of contracting such an illness.
The charity Macmillan constantly refers to the idea of ‘the hidden cost of cancer’. Critical Illness cover is designed to help tackle these hidden costs, because the lump sum pay-out goes directly to the policy holder.
It can, therefore, be used for whatever purpose it is needed such as home modifications, or covering the income for a carer who is unable to stay on at work.
Does critical illness cover pay out?
The five most claimed conditions on critical illness policies in the UK at the moment are cancer, heart attack, multiple sclerosis, stroke and permanent disability.
The claim you make on a critical illness policy will need to meet the definition set out by the provider. This is why it is crucial that you receive the right advice when arranging the cover.
Every provider covers a different number of conditions, and how these conditions are defined may also vary between them. If you are looking for a basic level of cover that would pay out for the most common conditions such as heart attack, stroke, cancer, and multiple sclerosis most providers would cover this as standard definition.
Macmillan predicts that by 2020, nearly one in two people will be diagnosed with cancer in their lifetime. We know that there are over 200 different types of cancer, and this is only one condition of many that are covered under a traditional critical illness policy.
The Association of British Insurers have confirmed that 97% of cancer claims have paid out, and over £1.1 billion was paid out to critical illness policy holders in 2018, with an average age of claimant of 48 years old.
What amount of cover is the right amount?
This will depend on your personal circumstances and your budget. The cost is driven primarily by the amount of cover you need and your current lifestyle. Pre-existing illnesses can potentially impact how much you pay, as will age and whether you smoke.
If you have a mortgage on your home and critical illness cover is important to you, you should start by looking at covering the full debt or portions of your mortgage. This will all depend on whether you would want to be debt free, or would be happy for a large part of the mortgage to be paid off.
Some clients do not use this cover to pay down the mortgage, but choose to use it to replace their income. This is where we can look at multiples of your salary, or your fixed annual outgoings, when working out how much cover is best for you. Indeed, in most scenarios having some level of cover is better than no cover. Even small things like taxi fees to and from hospital can be a burden if you’re not working.
How to get the advice you need
When it comes to arranging a critical illness policy, it’s not always the sum assured that matters. Arranging cover with the right provider involves having a detailed conversation around which types of conditions and severity are important to you.
We would make the right recommendation for you by taking into consideration what is most important and what providers are available based on your medical disclosure.
My team and I are on hand to answer your questions and queries. Feel free to contact me on: Hatice.Karadal@alexanderhall.co.uk to discuss any of the points raised or visit www.alexanderhall.co.uk
