Critical Illness Cover – A Guide By Elizabeth Bell

Informed Financial Planning’s Senior Paraplanner, Elizabeth Bell, has written an article surrounding Critical Illness Cover. This is something which each individual should thoroughly consider, though sometimes it can be confusing.

Elizabeth has worked in the financial services industry for many years, and today she is sharing her wealth of knowledge to provide you with further information regarding Critical Illness Cover (CIC).

Critical Illness Cover is an insurance contract whereby the provider will pay an agreed sum of tax free money upon the life covered being diagnosed with a specified critical illness and surviving the diagnosis for a stated period of time (typically 10 days to 28 days)

With improvements to diagnostics techniques and advances in treatment being made, it is arguable that you are more likely to be diagnosed with a critical illness and survive than you are to die.

‘Cancer, heart attack and stroke’ are the three common ailments that trip off the tongue when describing the illnesses covered under a critical illness policy. in reality the range of illnesses covered is quite wide.

The ABI guide* provides the model upon which many providers base their cover – some may cover fewer illnesses whilst some may cover more, so it’s important to always check the definitions used by the provider.

The ‘core’ conditions are: The ‘additional’ conditions are:
Cancer  Aorta graft surgery
Coronary artery by-pass surgery Benign brain tumour
Heart attack Blindness
Kidney failure Coma
Major organ transplant Deafness
Multiple scelorsis Heart valve replacement or repair
 Stroke Loss of limbs
 – Loss of speech
 – Motor neurone disease
 – Paralysis/paraplegia
 – Parkinson’s disease
 – Terminal illness
 – Third degree burns
 *Source: Association of British Insurers ‘A Guide to Critical Illness Cover’


What can the money be used for?

The money can be used for any purpose required – for example to reduce or clear a mortgage liability or other debt, to fund changes to the home that may be required or to pay for additional child care.

Fundamentally, the funds you receive give you and your family the breathing space to focus on recuperation and adjusting to a potentially different set of priorities and lifestyle. Any spouse or partner for example may not want to have to continue working full time merely to make ends meet when he/she would much prefer to be able to spend time helping in your recovery.

The range of illnesses covered varies from provider to provider so it is important that you seek independent financial advice to ensure the cover is tailored to your specific needs and requirements and that a comprehensive range of illnesses and conditions are covered.

The British Journal of Cancer* provided the following useful information:

Background: Typically, lifetime risk is calculated by the period method using current risks at different ages. Here, we estimate the probability of being diagnosed with cancer for individuals  born in a given year, by estimating future risks as the cohort ages.

Methods: We estimate the lifetime risk of cancer in Britain separately for men and women born in each year from 1930 – 1960. We project rates of all cancers (excluding non-melanoma skin cancer) and of all cancer deaths forwards using flexible age-period-cohort model and backwards using age-specific extrapolation. The sensitivity of the estimated lifetime risk to the method of projection was explored.

Results: The lifetime risk of cancer increased from 38.5% for men born in 1930 to 53.5% for men born in 1960. For women it increased from 36.7 to 47.5%. Results are robust to different models for projections of cancer rates.

Conclusions: The lifetime risk of cancer for people born since 1960 is >50%. Over half of people who are currently adults under the age of 65 years will be diagnosed with cancer at some point in their lifetime.

*Epidemiology – “British journal of cancer (2015) 112, 943-947. dol:10.1038/bjc.2014.606” – published online 3 February 2015

Questions to ask yourself

It is common to hear from couples ‘we’ll be alright just on the one salary’ or ‘we’d get by with one salary and our savings’. So, let’s look at an example and think of the questions you should be asking yourself:

Mr David Example – age 30 earning £40,000 per annum

Mrs Maureen Example – age 30 earning £20,000 per annum (part time)

Savings of £50,000 in cash; mortgage liability of £150,000.

2 children (aged 5 and 7)

Maureen has the bad news that she has been diagnosed with cancer – the good news though is that this is invasive, it is treatable but only with extensive and exhausting treatment.

  • Will David want to continue working at the same 40 hour week requirement whilst Maureen undergoes chemotherapy and radiation treatment?
  • Would David prefer to adjust his hours so that he can accompany his wife to treatments?
  • If he does so, how are the bills then met?
  • Will Maureen want to return to work at all following this?
  • If so, when will she feel able to do so – would both like some flexibility and peace of mind to be able to put her health above their budget?
  • Will additional child care need to be funded – if treatment is long term any temporary care provided by extended family (grandparents etc) may need to be reconsidered and funded separately.
  • Are any house alterations needed to accommodate any changed lifestyle?
  • Does a cleaner or gardener need to be paid for whilst the family is in turmoil?
  • Savings may be used but these were in place as part of a longer term retirement plan – are they prepared to adjust their lifestyle in retirement if these are exhausted in the short term?
  • Would anyone really want to consider downsizing at such a traumatic time, merely to release capital to fund expenditure?
  • Will priorities change so that more time is spent at home as a family unit rather than working?

Underpinning all of the above is to ask yourself how you would cope both emotionally and financially. We can all put figures into a spreadsheet and think ‘yep, no need for that cover, I’m sorted’. But are you? The emotional implications of such an event can send shockwaves through a family unit to the point that by the time you realise a financial injection would be so useful, it’s too late.

The above questions become even more intense if you are single and have only yourself to rely upon in terms of income.

This cover is really one that needs to be tailor made to your own requirements – it’s not as simple as one size fits all. You should therefore seek specialist advice through an independent financial adviser to ensure cover matches your own unique requirements. We can help!

This area of financial planning is very important, and Informed Financial Planning recommends that individuals do seek independent advice. Give us a call to discuss this further on 01482 219325. If you would like to ask Liz Bell for further information, just drop her an email by clicking here.

This article was originally published on 13/01/2016.  Taxation reliefs, levels and bases can change in the future and the content of the article refers to our understanding of taxation legislation at the date shown.  Tax is dependent on your own personal situation and circumstances and is subject to change based on UK legislation and taxation regime.