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The financial impact of a serious illness can vary quite significantly. Sometimes lifestyles can change drastically, eg. if paralysis was a result of the illness. In other cases the doctor could simply advise you to take life a little easier, by reducing the hours you work or changing to an easier occupation.
Critical illness insurance pays out a lump sum (or an income) on diagnosis of a critical illness, even though you may be able to continue working.
This kind of insurance can provide for the additional expenditure required when an illness occurs, eg. for modifying your home, having a recuperative holiday, supplementing lower paid employment or to pay off your mortgage. It complements income protection insurance, which pays you an income only when you cannot work.
Life assurance is usually included in critical illness policies as the difference in premiums is very small, and it is therefore a cost- effective way of having life cover.
What illnesses are covered?
Between them, life offices offer cover for around 40 different critical illnesses. Every office will include at least the following:
Other conditions commonly covered include Parkinson's disease, Alzheimer's disease and blindness.
Before you choose a policy, it is essential that you consider your family history and the illnesses you would wish to be included, as the range of illnesses covered by the providers can vary.
It is equally important that you consider the providers' definitions of illnesses as they also vary. In particular, mild forms may be excluded by some providers.
Can I be sure that the premiums will not increase?
Premiums can be either guaranteed or reviewable.
Guaranteed rate - the rate does not increase over the term of the policy. If rates should fall, however, premium payments could be stopped, the policy would lapse and a new one could then be taken out.
Care needs to be taken here to ensure that the provider accepts a new policy before the old policy is allowed to lapse and that the definitions of illness remain the same (or are still acceptable).
Reviewable rate - premiums can be changed at the discretion of the provider. This often means the premiums are lower at the outset and increase during the term of the policy, whenever the provider reviews the rates, typically annually or at longer intervals.
Because of the risk of very large premium rate increases, guaranteed rates are usually preferable.
© John Bramwell 2005
BV Services is Authorised and Regulated by the Financial Services Authority
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