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What is Critical Illness Insurance?

Article by Simon Christopher
Article added: 23/4/2005 - Last updated: -
Rating: 3.00 3.00 (1 votes)

Critical illness insurance is designed to pay a tax free cash lump sum upon diagnosis of any one of a wide range of critical illnesses covered by a policy such as Cancer, Heart Attack, Stroke, Brain Tumor and many more.

Many policies will also pay out if, due to accident or sickness, you are totally and permanently disabled and unable to continue your occupation.

Being diagnosed with a critical illness would be a major trauma in your life and those around you. Priorities change, goals and ambitions become more immediate and long term planning can suddenly become irrelevant. Your financial commitments would remain and any life assurance wouldn´t pay out until your death. Your employer may pay your salary for a few months but your illness may prevent you from returning to work altogether.

On top of this, the crisis may not be over when the illness is cured. Your doctor might advise you to change the way you live - get more exercise, avoid stress, change your job. The costs can be substantial:
  • the cost of treatment.
  • the cost of a change of lifestyle.
  • the cost of a change of career.
  • the cost of fulfilling a lifetime ambition.
A critical illness could affect you, and surviving could mean a whole new way of life. Critical illness insurance can ease the financial burden, giving you the opportunity of a second lifetime.

  • Work out how much money you would need if you were unable to work long term due to a serious illness. A rough guide of between two and five times your annual salary is often used.
  • What critical illnesses are covered? There are usually two levels of cover, a basic level that includes the six major conditions and more comprehensive cover that includes many more.
  • Check that permanent total disability is covered. Otherwise, if an illness or injury leaves you unable to work again and it is not specifically listed, you would not be able to claim. Also check the insurers definition of permanent total disability. Some policies will cover you against not being able to carry out your own occupation whilst others will only pay out if you cannot do any occupation. Clearly it is easier to prove that you are unable to do your own occupation than any.
  • What is the survival time? To claim under a critical illness policy you have to survive for a set time after your diagnosis, usually between 14 days and 3 months. The shorter the survival time the better.
  • Critical Illness cover is not life insurance and wont pay out if you die. If you need life insurance it is cheaper to buy a combined policy. Be sure to buy a policy which will let you continue your life cover if the policy pays out for a critical illness.
  • If you have or plan to have children, check that children's cover included. Some policies will pay a lump sum benefit if your children are diagnosed with a critical illness covered by your plan.
  • Does the policy include a counselling service? This can be a great help if you develop a serious illness.

PLEASE NOTE: The guidance published in this article is for information only and does not constitute financial advice or a recommendation of any particular product or company. If you are in any doubt please consult an independent insurance adviser. A database of advisers in your area is available at

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