40 years of critical illness cover: Could it improve your financial security?

A doctor talking to a patient.

Critical illness cover has been used to form people’s financial safety nets since 1983. Four decades on, it could improve your financial resilience and provide a cash injection when you need it most. 

Critical illness cover is a type of financial protection that would pay out a lump sum if you were diagnosed with a covered illness, such as cancer, or if you suffered a heart attack, for example.

It’s a form of financial protection that might provide your finances with a boost at a time when your income may fall or stop.

According to a survey from Macmillan Cancer Support, a third of people battling cancer stop work either permanently or temporarily, and 8% are forced to reduce their working hours. 

As well as a potentially lower income, the research also found that 85% of cancer patients faced increased costs as a direct result of their diagnosis. These costs include things like travel to hospital appointments and higher energy bills due to feeling the cold more. 

Almost 4 in 10 people with cancer have used savings, sold assets, or borrowed money to cover the costs or loss of income. 

This could place pressure on patients who should be focusing on their recovery. It may also affect their long-term finances. For instance, those diagnosed with a critical illness may halt their pension contributions or use savings that were earmarked for another purpose. 

Taking out appropriate financial protection may allow you to focus on your recovery and give you the financial freedom to take time off work if you need to. 

The average critical illness claim paid out more than £66,000 in 2022

Figures from the Association of British Insurers (ABI) suggest almost 20,000 people received a lump sum through a critical illness claim in 2022. The average amount received was £66,296. 

The money from a critical illness payout may have helped patients pay off their mortgage, cover day-to-day costs, or provide peace of mind during a difficult time in their life.

It’s a common misconception that financial protection won’t pay out when you make a claim. Indeed, the ABI figures show that more than 91% of critical illness claims were upheld in 2022. 

If you were diagnosed with a critical illness, how would your finances fare? Considering how you’d cope if you were unable to work or reduced your hours might identify a gap in your financial resilience. For some families, critical illness cover could provide a crucial safety net. 

3 useful questions to consider if you want to take out critical illness cover

  • What other steps have you taken to improve your financial resilience?

Often, critical illness cover is just one part of your financial plan that could improve your security if you fall ill.

Considering the other steps you’ve taken may help you choose financial protection that complements them. For instance, if you have an emergency fund, you may choose a lower potential payout when selecting financial protection.

It’s also worth reviewing the benefits your workplace provides. Some employers will continue to pay you a salary for a defined period if you’re unable to work due to an illness.  

  • How comprehensive do you want your critical illness cover to be?

Not every illness will be included when you take out critical illness cover.

Usually, only long-term and very serious conditions will be covered, and it’s important you understand in what circumstances it would pay out.  

Typically, the more comprehensive critical illness cover is, the higher your premiums will be. Other factors will also affect the premiums, including your age and health. The cost of cover can vary significantly between providers, so it might be worth shopping around before you make a decision. 

When you’re comparing options, make sure you understand what each provider would cover. Paying a higher premium could make sense if the cover would be more comprehensive than alternatives. 

  • How much would you need to receive to provide financial security?

You can choose how much you’d receive if you needed to make a claim for a critical illness.

Spending some time calculating how much you’d need to be financially secure if you were diagnosed with a serious illness could help you select an appropriate figure. You may want to consider what your regular expenses are and one-off payments you may want to make, such as paying off your mortgage. 

Usually, the higher the potential payout for critical illness, the higher the premiums to maintain the cover will be. 

Contact us to discuss your financial resilience

While you hope you won’t have to make a critical illness claim, knowing that you’ve taken steps to improve your financial resilience if you fall seriously ill could provide comfort.

If you’d like to talk about critical illness cover, as well as other steps that you may want to take to improve your financial security, please contact us. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.