Critical Illness Insurance: Is It Worth It? - Boss Of My Money

Critical Illness Insurance: Is It Worth It?

Categorised as Financial Wellness
mother with critical illness insurance

Knowing the importance of critical illness insurance is one thing. The relief of knowing that you have one is another. Nowadays, many people are more likely to live with life-threatening illnesses than die from one.

A critical illness diagnosis is worrying, but the cost of treatment and financial impact can be devastating.

Having critical illness insurance can keep you at ease, cover the cost of private treatment and pay your bills while out of work and recovering to good health.

This article provides insight and the benefits of securing one.

What does critical illness insurance mean?

Critical illness insurance, also known as critical illness coverage, is a type of insurance that covers you in the event of a major illness.

Any diagnosis or surgery covered by the policy results in full payment to the policyholder. It’s important to remember that your insurer will only cover the critical illnesses defined within the policy.

Even with personal savings and health insurance, this is not always sufficient to cover the cost of a critical illness.

Consequently, the loss of income while undergoing treatments and recovering from a critical illness can leave individuals worst off.

Some illnesses take longer to recover, leaving many employees to survive on £96.35 a week for Statutory Sick Pay (SSP) for up to 28 weeks.

What illnesses are covered in critical illness insurance?

The diseases that critical illness insurance covers are specified in the policy. Each insurance broker has different clauses defined in their policy. Critical illness insurance covers a variety of diseases, including life-threatening illnesses such as:

  • Heart attack,
  • Stroke, cancer,
  • Organ transplants,
  • coronary bypass, and others

In most cases, before the clause can be activated and a payout paid, the critical illnesses must reach a particular stage.

To be eligible for these benefits, you must have permanent symptoms and a specialist’s diagnosis.

Brokers intervene 10-14 days after diagnosis. Each brokers’ policies vary.

Conditions that are discovered or examined prior to insurance purchase are not covered.

Is critical illness insurance worth it?

The concerns around individuals struggling to look after themselves after a serious illness diagnosis is a worldwide matter.

According to the American Journal of Public Health, two-thirds of all bankruptcy filings are at least partially caused by medical issues.

Free NHS treatment is given to all legal residents, in the UK. However, loss of income due to illness and patients considering private treatments could still benefit from Insurance against critical illness.

Five reasons why critical illness insurance is worth having:

  1. Genetics and heredity, as well as other uncontrolled variables, increase the chance of a severe disease being diagnosed.
  2. The insurance helps mitigate financial bankruptcy and insolvency risk.
  3. A critical illness plan can cover the loss of income throughout the recovery period.
  4. Health insurance won’t cover all your expenses in the event of a critical illness condition whereas Insurance against critical illness can.
  5. Getting insurance coverage after a diagnosis may be difficult. Therefore, having cover before an illness occurs is always better.

How much coverage do I need?

The policyholder’s financial needs determine the amount of coverage required. When estimating how much critical sickness insurance you need, consider the following costs if you lost your job due to a diagnosis:

  • Childcare or child maintenance cost
  • Regular bills like electricity and water, council tax, and car insurance
  • General living costs, like food bills and petrol
  • Any medical expenses from adapting your home or travelling to the hospital for treatment, or private medical care
  • Mortgage or rent costs

Knowing your overall household expenses, workplace sick pay policy, and accessible benefits or welfare support will help you determine how much you need to buy the policy.

When evaluating how much coverage you need, multiply your annual income by three and choose a cover level that fits your income and responsibilities.

What Category would critical illness go in my budget?

If you are using the 50/30/20 rule, your critical illness expense will come of the 50% needs category

If you are using the zero-based budgeting method, your payments will come out of the priority or necessity category.

Is critical illness insurance taxable?

Insurance for Critical Illness is taxable depending on who is paying for the premiums.

If an individual purchases the cover and pays the premium, then it is not taxable.

But if the employer purchased the cover and pays the premium, then it is taxable.

If the individual and the employer are doing a combined payment for the premium, Insurance for Critical Illness is taxable depending on who is paying for the premiums.

If an individual purchases the cover and pays the premium, then it is not taxable.

But if the employer purchases the cover and pays the premium, then it is taxable.

When an employee and an employer jointly pay a premium, only the employer’s portion of the premium is subject to tax.

Critical illness vs terminal illness

Both terms are often confusing, and people tend to mistake one for another though it is quite different.

Insurance for Critical Illness refers to long-term severe injury, illness, or medical condition that changes a person’s way of life. Wheras a terminal illness is a life-threatening illness that cannot be treated.

Critical illness cover vs income protection

Critical illness cover pays a single huge sum when diagnosed with a specific illness (stroke, cancer, organ transplant, etc.).

The advantage is that it relieves you from financial fears. Income protection only provides you with a percentage of your gross salary for a specific period when you become ill.

It’s worth noting; that income protection does not cover most critical illnesses.

It’s a wrap

To summarise, no one plans to become ill, but you must plan for unanticipated life events like with everything else in life.

Many people believe that critical illness insurance is unaffordable without appropriate investigation.

In reality, coverage can be reasonable and within your budget. If you’re wondering when to get coverage, tomorrow may be too late, but today will do. Waiting too long after diagnosis may result in becoming uninsurable or higher premiums.

Therefore Insurance against critical illness is not only worth it but can be affordable if you understand your financial needs.