The Purpose of Critical Illness Insurance

Critical Illness cover is a form of insurance product whereby the policy holder receives a lump sum cash payment from the insurer once diagnosed with any given illness stipulated in the policy. Unlike full life insurance, it does not require the policy holder to die.

To ensure that the pay-out is triggered, the policy-holder must survive a minimum term to ensure that this is considered a survivable illness, usually about 28 days. Up to two dozen different illnesses can be covered by the policy and they are all survivable to a greater or lesser degree but with improving medical technology the probability of living a full life after diagnosis is increasing.

Because the types of illness covered can strike at any age, it is important to consider the benefits while still young and one of the most important times to think about it is when buying a house. If a young couple buys a house and one of them is taken seriously ill, Critical Illness cover becomes an immediate benfit as it can remove the huge overhead of mortgage payments and make like much easier.

Policies for critical illness can either pay out every month, or every year, but more often they are a lump sum. If the former option is chosen then it could potentially work as an income replacement policy although this is not necessarily a reason to ignore an ordinary income protection plan which can pay out over simple illnesses and short times off work.

When critical illness cover was devised, the four main conditions covered were heart attack, cancer, stroke and coronary by-pass surgery but this has now been extended to include organ failure, or transplant, paralysis and other conditions like Alzheimer's disease.

Critical Illness plans have their origins in policies drawn up by the South African Dr Marius Brand in the 80s who termed it "dread disease insurance" and the potential for this type of cover was seen across the world quickly and adopted across many countries.

Obviously the policy safeguards the policy holder, however the insurers themselves are not out to lose money, and therefore the person taking out the policy must give the insurer no reason to think a payout is imminent. The policy holder must be fit and healthy at the outset and factors such as smoking and dangerous sports are taken into consideration.

Critical illness insurance can be quite a costly plan at the best of times that said it is always better to take out the plan the younger you are. This is due in no small part to the fact that the risk of contracting a critical illness does increase sharply the older you get and for this reason some insurance companies will not insure anyone over the age of 65. However there are some, very few, who will still offer cover but at a price over this age.

Critical Illness cover is beneficial for peace of mind, and protecting against the unforeseen. By adding life insurance to the policy too then all options are covered, for a full life after the diagnosis of what can be a relative minor issue, or if the worst happens then there is some financial help for those left behind.

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