Critical Illness Cover

Options available

Types of term—Decreasing, level or increasing

You can choose the type of benefit depending on what you want to protect and how you want the sum assured or benefit to be used in the event of a claim.

Decreasing Term policies are designed to pay off the outstanding balance of a repayment mortgage at any point in the mortgage term. This is the cheapest type of policy because the further into the term you claim, the lower the sum paid out. The monthly premiums remain level.

Level Term policies pay the chosen benefit amount or sum assured if you die within the years covered by the plan. The monthly premiums also remain level.

Increasing Term policies retain their value by increasing every year on the inline with either a specified percentage increase or the retail price index (RPI) thereby ensuring that the lump sum paid out is ‘inflation-proofed’. The premiums also increase inline with the sum assured.

Types of Pay out—How the benefit is paid

Lump sum benefit

The most common type of term insurance policy provides a guaranteed lump sum benefit in a single payout in the event of a claim. This is treated tax free under current UK legislation.

Family income benefit

Instead of paying the sum assured in a lump sum, some insurers offer a family income benefit policy that will pay an ongoing income following a claimable event such as death or critical illness. This is typically arranged as a type of personal protection, as the name suggests, rather than mortgage protection. One popular use for this type of policy is to replace a parent or partner’s income in the event of death or diagnosis of a critical illness. The policy will pay the benefit to the beneficiaries until the end of the chosen term. E.g. until children reach an age that they are no longer financially dependent on their parents.

Other options you can choose

Joint Cover

If you are taking out life insurance or critical illness cover to protect yourself and your partner, you can do so under one joint policy. A joint policy will pay the sum assured on first event and then end. For more information on joint term insurance and comparing two separate policies, please see comparison page.

Critical Illness Cover can be linked to a life policy as an alternative to ‘stand-alone’ critical illness cover. This type of cover is called death or earlier critical illness cover because you claim on the first of those events. Interestingly, in many cases death or earlier critical illness cover quotes are priced very similarly to stand alone critical illness cover and sometimes are even cheaper. For more information about critical illness cover and options please see the critical illness cover guide.

Terminal Illness Cover is an option that is often included free of charge as a feature of life insurance policies. For obvious reasons this is easily confused with critical illness cover, but is actually very different. Terminal illness cover will pay the sum assured early in the event of the life insured being diagnosed with a condition that gives them less than 12 months to live. Typically it will exclude the last 12 or 18 months of the term thereby representing no additional risk to the insurer.

Waiver of Premium

For a small additional premium the waiver of premium or premium protection option ensures you don’t pay you monthly premiums if you are unable to follow your normal occupation due to illness or injury. The insurance company will pay your premiums to maintain the benefits under the policy, usually after 6 months and until you are back to work.