Critical Illnes life cover plans compared Have you taken care of the worst case scenario?

posted 14 Aug 2009 critical illness insurance

How are Critical & Terminal Illness defined?

Critical Illness life insurance policy pays out a lump cash sum to the beneficiary on diagnosis of a critical or terminal disease. The diagnosed disease must be permanent and incurable in nature for the policy to be effected.

If according to the terms of your policy assured payment of the cash sum differs for the critical illness life cover and the death cover, than there is required period of 28 days (14 days in some other life insurance policies) survival period, which needs to pass before lump cash sum will be paid.

Critical illness cover is not usually sold as a stand alone cover, but it is packaged with general life cover that will pay the assured sum to the beneficiaries in case of your death. Here some life insurance policies differ, since they can both be linked to either fixed term or decreasing mortgage protection cover.

If you are a single person, without any beneficiaries to whom you might want to transfer the benefit, than a life cover would not make much sense and it might make more sense to go only for the critical illness life assurance. On the contrary, if you have some dependents like a partner or kids, that you would like to take care of in the case of your death, than the life insurance policy which combines critical illness with life cover might be the right answer.

It must be said, that in the case of joint cover, a typical life insurance cover doesn't pay twice, but only once, on the first death of the either joint partner.

One special case is Terminal illness. If you rise or your beneficiaries rise a claim for a terminal disease, than insurer will ask you to provide a medical certificate. You will be responsible for bearing the costs of this certificate, but insurer will pay those costs back to you in the case they accept your claim.

What is the difference between the Critical and Terminal Illness life insurance?

If you are diagnosed with terminal illness, which means that qualified doctors estimate that your life expectancy is less than 12 months, than insurer will arrange that your assured cash sum is paid out early to help you and your loved ones through difficult times.

From the point of view of the insured person there is not much difference. The both conditions require the insured person to obtain a medical certificate confirming his or her condition. In the case of terminal illness, there can be a grace period of 31 days and the insured is required to continue payment of the monthly premiums. If for whatever reason the assured sum doesn't get paid upon Terminal illness request, that does not prejudice any subsequent death claim.

How Critical Illness life cover policies from different providers compare?

Not the all serious illness life cover policies are born the same. Some providers like Prudential with their PruProtect Comprehensive Plan covers 154 conditions, while some other insurers, like Tesco Bank list on their site only 27 conditions. Obviously, one gets what he pays for and since it is impossible to know what future might bring, it is worth checking the list of covered conditions. A typical insurer will cover the 27 dire terminal diseases and they will pay lump cash sum only after disease reaches pretty much an irreversible stage with permanent symptoms. For example, some forms of cancer that are not considered incurable, will not be covered.

Unless you know what is really awaiting you, it might be worth going for the widest cover policy, like Prudential's Comprehensive Plan. But if policies like this one might be out your budget, you should stick with the more economical standard solution.

It is worth noting that the first occurrence of a disease cancel out any subsequent benefits. That means that you can not get paid lump cash sum twice. For example if you suffer a stroke and you get paid the cash sum you are entitled to and subsequently you loose speach ability or die, there will be no entitlement to the second lump sum payment. This same rule applies for the joint applications, where one of the partners in a couple suffers a critical illness or dies. The lump cash sum will be due on the first proven claim, but this entitlement will be spent and it will not be due if for example the second partner falls ill.

As well, in a case of suicide that occurs in the first year from the start of the policy no lump cash sum will be due. Some other cases can lead to cancellation of the plan, like taking part in dangerous sports, criminal acts, alcohol and drug abuse, refusal to follow medical advice, self-inflicting injury and war.

What diseases and conditions should I expect to be covered with my policy?

The 27 most common conditions that majority of policies cover are: Alzheimer's Disease, Aorta graft surgery, Balloon valvuloplasty, Benign brain tumor, Blindness, Cancer, Coma, Coronary Angioplasty, Coronary artery by-pass, Deafness, Heart attack, Heart Surgery, Heart valve replacement, HIV Infection, Kidney failure, Loss of hands or feet, Loss of speech, Major organ transplant, Motor neuron disease, Multiple sclerosis, Paralysis of limbs, Parkinson's Disease, Pulmonary artery surgery, Stroke, Third degree burns, Total permanent disability and Traumatic head injury. All those diseases need to result in permanent symptoms in order to be eligible for lump cash sum payment.

There is possibility that definitions vary from one insurer to the another, so you should ultimately check the actual policy terms before you commit yourself.

In the above category of the most common diseases, Tesco Personal Finance excels with 27 critical illness conditions covered. While on other end Virgin's "Cancer Cover" only takes care of two critical diseases.

Some other life insurance policies, usually called comprehensive, will cover other less common disease. For example these conditions can be: Angioplasty, Aplastic anemia, Bacterial meningitis, Cardiomyopathy, Creutzfeldt-Jakob disease, Diabetes, failure of Liver, Mastectomy, Open heart surgery, pre-senile dementia. progressive superanuclear palsy, rheumatoid arthritis, sever lung disease.

Reading medical definitions listed in the terms of your policy might make a dense reading, so in order to help consumers make right choice for themselves The Association of British Insurers (ABI) has recommended the 'wording' that should be used with providers of the critical illness cover.

Taking a critical illness insurance is wise step and it should be followed by the other one, which is carefully making yourself aware of what is exactly covered and under what conditions. There is no point paying the monthly premium for 20 years or more only to find that your expectations were not met because you took happy end for granted. The insurance providers had been known to delay and even refuse to pay the assured lump sum on the basis of some technicality. It is well worth reading the terms and conditions of your policy in every case.

For example, there is usually 30 days gratis period upon submission of the medical certificate diagnosing terminal illness. Simply put, that means that for 30 days since insurance provider receives the medical certificate you have to keep on paying your household expenses out of your pocket. If you find out about this 'technicality' only at the last moment, while the possible trauma of the illness of your loved one goes on around you, it is just going to add to your grievances.

What do I need to look for in the critical illness life insurance policy?

Although there are other important things to consider when evaluating an insurance policy, then number of diseases covered is one of the most important "product features". Here is a partial list of providers and the number of diseases they individually cover, that could be a good starting point for your research:

Critical Illness conditions covered:
AEGON Scottish Equitable 36
AXA 34
Bright Grey 34
Friends Provident 34
Legal & General 34
Prudential - PruProtect 154
Scottish Provident 32
Skandia 34
Synergy Financial 28
Scottish Widows 32
Tesco Bank 34
Unum 32
Windsor Life 27
Zurich 38

Other important options on the critical illness life cover you are considering are indexation and guaranteed insurability. Indexation simply means that you will try to protect the real value of the assured payout sum from inflation by accepting that your monthly premiums rise each year by a predetermined amount.

Guaranteed insurability means that, if you for example move to a bigger house, you'll have an option to increase the sum assured in order to cover for an increase in your mortgage. It might be one very important option for you if you intend to climb up the property ladder and if your family increases and you need a bigger home.

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