The critical factor

Would a tax-free ‘lump sum’ help if you became seriously ill?

Most home buyers purchase life assurance when they arrange a mortgage, but many overlook another form of financial protection that they are potentially more likely to need prior to retirement.

Critical illness cover, also known as critical illness insurance, covers specified serious illnesses and provides a tax-free ‘lump sum’ – a one-off payment that could be used to help pay for your mortgage, liabilities or alterations to your home such as wheelchair access should you need it, but ultimately it’s your choice how you use it.

Specified medical conditions

Critical illness insurance will pay out if you are diagnosed as suffering from one of the specified medical conditions or injuries listed in the policy. But you need to be aware that not all conditions are covered, and the policy will also state how serious the condition must be. Conditions covered could include heart attack, stroke, certain types and stages of cancer, and conditions such as multiple sclerosis.

Some policies may also include permanent disabilities as a result of injury or illness. Some policies may make a smaller payment for less severe conditions, or if one of your children has one of the specified conditions.

Major financial commitments

People typically purchase critical illness cover when they take on a major financial commitment, and it also pays to start young when premiums should be relatively cheap, rather than leaving it until later in life when the price of cover can start to rise substantially.

You might already have some cover included in other products or work benefits. However, if you don’t, State benefits might not be enough to replace your income if something goes wrong. In this eventuality critical illness cover should be considered if you don’t have sufficient savings to tide you over if you become seriously ill or disabled, or you don’t have an employee benefits package to cover a longer time off work due to sickness.