Should I take out critical illness cover?
- Shunil Roy-Chaudhuri, Personal Finance and Investment Writer
- 08 September 2023
- 5 mins reading time
Critical illness insurance provides you with a tax-free lump sum if you are diagnosed with certain illnesses or disabilities (although some policies give you the option to receive regular income payments via family income cover). Critical illness policies cover illnesses and injuries such as cancer, heart attack and loss of limbs.
This lump sum could offer you the peace of mind that you would potentially have the financial resources to pay essential costs. These could include medical treatment, domestic and personal adjustments required due to the illness, paying a mortgage, or other living expenses. Our What is critical illness insurance? article explains this type of cover in more detail.
So should you take out critical illness insurance? There is no simple answer to this question, as it will depend on your individual circumstances. But critical illness cover can potentially play a key role alongside other forms of protection, most notably life cover and income protection insurance.
Life cover can pay out on death, but it won’t pay out if you suffer a serious illness and survive. Income protection insurance can provide an income if you become unable to work due to illness, but does not provide a lump sum. A lump sum could offer invaluable help with the additional costs incurred by a serious illness, and it can provide additional financial security at a difficult time. This could be vital if your family relies on you financially.
Limited state benefits
You might be eligible for state benefits if illness leaves you unable to work. But these could be insufficient to maintain your standard of living. For example, employees may be able to claim Statutory Sick Pay of £109.40 a week for up to 28 weeks if they’re unable to work (1).
Employees should also find out what benefits their employer provides if illness or disability leaves them unable to work. Many employers offer sick pay that ends after six months, but some employers offer more substantial benefits for staff who are unable to work. If these benefits are sufficiently generous, then you may not need critical illness cover.
It’s also worth finding out if you already have some illness cover combined with another insurance policy, such as a life insurance policy, or alongside your mortgage. If this is the case, and the cover is adequate, then you may not require a separate policy for critical illness.
Moreover, you may not need this kind of cover if you have significant savings that you don’t mind using to help you cope with a serious illness. You also might not need it if you have a partner who is willing and able to cover your costs and joint commitments such as a mortgage.
Despite these caveats, the reality is that a serious illness would leave many of us financially exposed. Critical illness insurance could potentially provide us with additional financial security at a time we need it most and can play a vital role in getting fully protected.
How much cover you might need depends on a range of factors. These include income levels, family responsibilities, mortgage or rental outgoings, levels of debt and what savings you have access to. The cover you take out will also be subject to terms and conditions, which you should make yourself aware of before taking out the policy.
Critical illness insurance can be set up to cover such things as paying off a mortgage or other financial commitments. It can also pay for medical treatment, any care requirements, periods of recovery and making any necessary adjustments to your home.
A financial adviser can view your financial planning requirements holistically and help you decide if critical illness insurance is right for you and what level of cover you might need. At Schroders Personal Wealth, one of our principles is to have regular reviews with a financial adviser, to help ensure you are on track to achieve your life goals.
Sources:
(1) moneyhelper.org.uk, ‘What disability and sickness benefits can I claim?’, 30 August 2023.
Important information
This article is for information purposes only. It is not intended as investment advice.
Fees and charges apply at SPW.
Any views expressed are our in-house views as at the time of publishing.
This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or part) without our prior written consent.
In preparing this article we have used third party sources which we believe to be true and accurate as at the date of writing but can give no assurance or warranty regarding the accuracy, currency or applicability of any of the contents in relation to specific situations and particular circumstances.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Protection policies have no cash-in value at any time. If you don't pay your premiums on time your cover will stop, your benefits will end, and you'll get nothing back. If the benefit amount has not been paid out by the end of the selected term, the policy will end and you'll get nothing back.
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