Comment

CRITICAL illness insurance pays out a lump sum on the diagnosis of a range of serious illnesses, provided the patient survives a minimum period after diagnosis, typically 21 or 28 days.

The cash is paid regardless of whether they make a full recovery or not. The number of medical conditions covered varies from insurer to insurer, but they will include a heart attack, stroke and most forms of cancer and each policy will specify exactly the range and specific types of illnesses that it covers.

Advances in medical know-how' are making it possible for people to survive and even enjoy life during and after suffering a serious health setback. However, if you survive, but are not well enough to work, you will still have the mortgage and bills to pay.

In fact it's likely that your living costs will increase if you need some sort of nursing care or have to adapt your home accordingly, so critical illness insurance is designed to cover both loss of earnings and a potential increase in living expenses.

Critical illness cover first appeared in the UK in the late 1980s, but it originated in South Africa having been developed by the brother of famous heart surgeon Dr Christian Barnard.

Although initially offered as an add-on' to term, whole of life and endowment policies, it is now also available as stand-alone insurance cover.

There are broadly two types of critical illness policy: whole of life and term cover. As their names suggest whole of life' lasts as long as you live, whereas term is for a fixed period, usually 10 or 25 years.

When buying a policy, you have to choose between guaranteed and reviewable rates. Guaranteed critical illness polices are so called because they charge the same premiums for the whole of life policy while a reviewable policy has rates that may be altered by the insurer. A typical reviewable policy will have premiums fixed for the first five years, and then reviewed at regular intervals afterwards, whether every five years or even every year.

The policy holder's advancing age and likelihood of developing serious disease are factored in from the outset so there is no age banding once the policy starts, unlike private medical insurance.

If you already have a life assurance policy, you may think critical illness cover is a waste of time but it offers very different protection. Your life assurance policy will only pay out if you die, whereas critical illness insurance will pay up as soon as you are diagnosed with a life-threatening illness.

q Bates Investment Services Ltd is authorised and regulated by the Financial Services Authority and is a wholly owned subsidiary of The Money Portal Plc. Answers given in this article are for guidance only and should not be taken as individual advice. Specific advice should be taken before acting on any of the guidance set out in this article. The Financial Services Authority do not regulate deposit accounts or the writing of wills, or some forms of mortgages.

3:51pm Monday 3rd March 2008

Print

Email this

Comment