Critical Illness Insurance - Pros and Cons
A Tax-Free Lump Sum when Diagnosed with a Life-Threatening Illness
Jan 29, 2009
In the event of a life-threatening illness, critical illness cover provides a tax-free lump sum. When unable to work, this tax-free lump sum can be used to assist with day-to-day living expenses. Dealing with financial difficulties when struggling with cancer or a heart condition only serves to exacerbate problems. Critical illness insurance is often taken out along with life insurance.
Advantages of Critical Illness Insurance
- Tax-free lump sum. Within 30 days of being diagnosed with a life-threatening illness, a critical illness insurance policy pays out a tax-free lump sum;
- Family protection. Critical illness insurance is essential for those that have a mortgage to pay or young family to protect;
- Covers up to 30 diseases. Whilst the specifics of what is covered by critical illness cover vary between policies, all should cover: kidney failure, major organ transplants, cancer, heart attacks, coronary artery bypass, multiple sclerosis and strokes;
- Peace-of-mind. Whilst nobody expects to get a life-threatening illness, critical illness cover provides a family with peace-of-mind. Not having to worry about financial difficulties during recovery allows someone to recover when they are unable to work;
- Guaranteed premiums. Whilst reviewable premiums tend to be cheaper, it is advisable to get guaranteed premiums as they will save money over the term of a critical illness insurance policy.
Disadvantages of Critical Illness Insurance
- Additional costs. Those struggling to pay general living expenses may find that it is difficult to afford critical illness insurance, life insurance and other forms of cover deemed essential;
- Exclusion of certain diseases. Most policies no longer cover lymphoma or Kaposi's sarcoma in the presence of HIV, non-invasive skin cancers, and less advanced cases of prostate cancer. Always check critical illness insurance cover policies for specific details as they can vary considerably between policy providers;
- Existing medical conditions. Should certain close family members have a high incidence of a specific life-threatening illness, premiums may be increased or the disease excluded. Those that have already suffered a life-threatening illness will find that it is excluded from the policy;
- Under-writing process. Once all the information has been gathered, those underwriting a critical illness insurance policy may increase premiums. Premiums are usually increased for those that smoke, have a higher incidence of certain diseases within a family bloodline or are deemed to be over weight;
- Rejection. Those that are already in poor health may find that it is very difficult to get approval for a critical illness insurance policy.
Taking out critical illness insurance could be considered essential for someone with a family and financial commitments. Does anyone really want to be struggling with financial difficulties when dealing with a life-threatening illness? Premiums do vary considerably so always use a price comparison service and don't buy critical illness cover directly from a tied-agent when getting a remortgage.
Those with young families or mortgages should also consider income protection insurance or mortgage insurance in the event of ill health or involuntary redundancy. People that are concerned about the future may also be interested in saving for uncertainty by starting a cash ISA.
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