Critical illness cover (CIC) is effectively a type of insurance. Just as you take out car insurance to cover yourself in the event of accident or repairs, CIC aims to help cover you in the event that you suffer a “critical illness” which could reduce or eliminate your income due to your inability to continue paid work.
That might sound fairly straightforward, but there are quite a few nuances which are important to understand. After all, how exactly does it work? Do you even need it?
In this post, our Sale-based financial advisers here at Suttons IFA will be answering those two questions directly. Please note that this content is for information and inspiration purposes only, and should not be taken as financial advice.
To receive regulated, tailored financial advice into your own situation please consult an independent financial adviser. Here at Suttons IFA, we can offer you a free, no-commitment consultation if you would like to explore this further with us in person.
Critical Illness Cover (CIC): A Brief Overview
When you crash your car, what often happens is you will call your insurer and make a claim. From there, they might ask you to take your car to an approved local garage for an assessment. Sometimes this will result in a payout from your insurer (e.g. if the car is written off). Critical illness cover (CIC) works somewhat similarly, but with some important differences.
First of all, CIC is a “long term” insurance policy. Rather than covering, say, 1 year as in the case of car insurance, CIC could cover you for 20 years or even much longer.
Secondly, CIC pays you a one-off payment in the event that the conditions of the policy you signed with them are met. This is important to understand, as not all illnesses and injuries are likely to be covered. Your policy will also likely state a qualifying “seriousness” of the illness concerned before they agree to pay out.
Examples of the types of conditions which might be covered by a CIC policy include:
● Certain cancers
● Multiple sclerosis
● Kidney failure
● Heart attack
● Permanent disability (caused by injury or illness)
Before we move on, it’s important to qualify one more thing. Be careful not to confuse critical illness cover with life insurance. Whilst the former pays out when you suffer a defined “critical illness”, the latter pays out only if you pass away during the period covered under the policy’s terms.
Do I need it?
Unemployment benefits in the UK arguably do not amount to much, if you qualify for them (e.g. £50-£70 per week). So if your costs are unlikely to be covered by these in the event that you fall seriously ill and can no longer earn money, then CIC should be a consideration.
Here are some common types of people for whom CIC is likely to be relevant:
● Those with little/no emergency savings to sustain them over a protracted illness.
● Those with young children or dependents who rely on your salary.
● Those with a job which does not offer a generous employee benefits package, providing income and support during a long period off work due to injury/illness.
● Business Owners, who rely on key employees being fit and able to work so that the business to continue running smoothly and profitably.
How much is it?
There is no universal, fixed cost for CIC. The amount you pay depends on a range of factors including (but not limited to):
● Your age at the time you take out the policy.
● Your family medical history.
● Your own past history of illness/injury, and any pre-existing conditions.
● Lifestyle factors (e.g. smoking/non-smoking).
There are a number of price comparison websites on the internet which can help you get an idea of the different kinds of prices you might be looking at, in your own individual. However, we recommend that you discuss this with an independent financial adviser before committing to a policy which could bind you to hundreds of pounds each month for years, or even decades. Our team here in Sale, Cheshire, for instance, will be able to help you assess the options in light of your wider financial plan, and help you make an informed decision about getting a good deal for the amount of cover you require.
How much cover is necessary?
Again, this will be different for everybody. One important factor will be your ongoing costs, which would need to be covered in the event that you fall ill and can no longer work. If your monthly expenses are quite high, then you will likely potentially need a bigger lump sum to help cover these (resulting, most likely, in higher premiums).
You may also want to consider your mortgage, in light of CIC. It might be, for instance, that if you fell seriously ill but the mortgage was suddenly completely paid off, then your family might be able to get by (e.g. on your partner’s sole income). In cases such as these, you might want to ensure that your CIC policy would enable you to fully pay off the mortgage in the event you needed to claim. (Quite often, mortgage lenders require you to take out a policy like this now).
Finally, you might want to think about life insurance in addition to CIC. As mentioned above, the former will enable your family and dependents to receive a lump sum in the event that you pass away and can, therefore, no longer earn.
This can be an important extra layer of protection for many families, but finding an ideal set of life insurance and CIC policies which work well together for your circumstances can be a challenge. Again, we invite you to get in touch with an independent financial adviser at Suttons IFA here in Sale, Cheshire, if you’d like to discuss this.