Critical Illness Cover

A serious illness, such as cancer or heart attack, affects one-in-four women and one-in-five men before retirement age. Critical illness insurance is designed to ease the financial pressures by paying a tax-free lump sum if you become seriously ill or totally disabled. You must normally survive at least one month after becoming critically ill, before the policy will pay out.

What it covers

Also known as dread disease cover, critical illness insurance pays benefits on the diagnosis of certain specified critical illnesses. The range of diseases covered has increased to more than 30, though contracts differ from one company to another.

All policies should cover seven core conditions. These are cancer, coronary artery bypass surgery, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. They will also pay out if a policyholder becomes permanently disabled as a result of injury or illness.

But not all conditions are necessarily covered. In May 2003, insurers adopted new rules set by the Association of British Insurers, that tightened the conditions under which customers could claim on critical illness insurance policies.

The changes mean that policies won't cover conditions such as non-invasive skin cancers, and less advanced cases of prostate cancer. Tumours that have not yet invaded the organ or tissue, and lymphoma or Kaposi's sarcoma in the presence of HIV are excluded.

There are also more restrictive conditions for heart attacks. There has to be evidence of typical chest pain, or changes in the electrocardiogram (ECG),for example, if a claim is to be successful. Cardiac conditions, such as angina, will not be covered.

For single people with no dependants, critical illness cover that pays off the mortgage is more important than having life cover, as it means you have fewer bills or a lump sum to play with if you are very unwell.

But it can also be useful if you are part of a couple. It provides a welcome financial boost at a time of emotional stress and financial hardship.