Serious illness insurance

Serious illness insurance pays you a tax-free lump sum if you are diagnosed with one of the specific illnesses or disabilities that your policy covers. It is also sometimes called ‘critical illness cover’. It is often sold as an extra benefit on a life insurance or mortgage protection policy, but it can also be sold as an insurance policy on its own.

What is covered in a typical serious illness policy?

If you are thinking about taking out serious illness insurance, it is important to realise that it would not replace your income if you were out of work due to long-term illness.

Serious illness insurance will only pay out if the illness is covered by the policy. Many illnesses that would prevent you from working may not be covered by your policy. Even when the illness is covered, the policy pays a once-off lump sum and not an ongoing income.

Not all policies will cover the same illnesses, or common illness, such as angina, back injury and treatable cancers. You should check with your insurer or broker for details of the illnesses covered before you take out a policy.

The list of illnesses varies between insurers but usually includes stroke and heart attack, some types of cancer, coronary artery disease, multiple sclerosis, kidney failure, motor neuron disease, blindness, major organ transplantation (including being on a waiting list for transplantation), a benign brain tumour and severe burns.

You may be tempted to choose a policy that covers the most illnesses. But it is more important to consider the definitions of illnesses. With some policies your condition would have to be extremely serious before you can make a claim.

The Central Bank’s Consumer Protection Code requires firms to explain clearly to you the restrictions, conditions and exclusions that apply to your policy. As well as general exclusions, there may be specific exclusions based on your medical history, job or lifestyle.

Policies vary, but they usually include:

Permanent total disablement (PTD)

This is sometimes included in these policies. So, if you become permanently and totally disabled from an illness or condition that is not otherwise covered by the policy, you could claim the serious illness benefit.

There are two types of PTD cover:

  • Any-occupation PTD – This means you can only claim if you are unable to work at any job. It means you are permanently unable to do many normal daily activities, such as walking, lifting, bending, writing or speaking. The risk of this happening to you is quite low, so any-occupation PTD is often included in the standard illness list
  • Own-occupation PTD– This means you can claim if you are permanently and totally unable to do your current job. You will usually pay extra for this type of PTD cover. You may not be able to get this extra cover if your job carries a higher risk of disability, for example if you are a sports professional

Children’s serious illnesses

Your children may be covered for most of the serious illnesses listed on your policy, and sometimes for other child-related illnesses, such as meningitis. The maximum benefit for a child’s claim depends on the policy, but it is usually no more than 50% of your cover, up to a maximum of about €15,000.

Waiting list and overseas surgery benefit

This means the insurance company pays out part of the serious illness benefit if you are put on a waiting list for certain major types of surgery, or if it is essential for you to have major surgery outside of Ireland.

Do you need serious illness cover?

You may want to consider serious illness insurance if you:

  • have no other cover for ill health
  • are not in paid employment, so cannot buy income protection insurance
  • have a mortgage, personal loans or other debts that you would still have to pay if you became seriously ill and possibly unable to earn an income
  • have dependants who rely on your income or unpaid work, such as work you do in the home or in a family business

You can claim the benefit on your policy only if you meet the following three conditions:

  • the illness you develop is one of the illnesses your policy covers at the time of your claim
  • a medical diagnosis confirms that your illness matches the definition of that illness outlined by the insurance company in your policy terms and conditions
  • you survive for a period after you are diagnosed – this period may be seven or 14 days, depending on the policy

There are many situations where you may not be covered by your serious illness policy. You will not usually be covered if:

  • your illness is judged to be caused by drug or alcohol abuse, a self-inflicted injury or failure to follow medical advice
  • your illness existed before you applied for insurance and you failed to say this in your application
  • your illness came about because you were involved in dangerous or criminal activities
  • you live outside the ‘territorial limits’ of the policy for a certain number of months of the year. The territorial limits may vary from policy to policy but would usually mean all EU countries

Buying serious illness insurance?

You can buy serious illness insurance directly from an insurance company or through a broker. To apply for this cover, you will need to fill in a detailed application form, called a proposal form.

Some insurance companies offer you extra benefits on their policies, but they usually charge you more for these. The typical extra benefits are:

  • personal accident benefit – which gives you a weekly payment for a limited period if you cannot work due to an accident
  • hospital cash – which is a daily payment you get if you have to stay in hospital for a certain period. It is paid for each day you spend in hospital as a result of an illness or accident. There is usually a minimum ‘waiting period’ before the cover commences, for example, you may have to spend five days in hospital before the cover will start
  • a conversion option – which lets you convert your cover into a new policy when you are older, even if you are in bad health at that stage
  • indexation or inflation protection – which increases your cover each year to allow for inflation

How much does it cost?

For the same amount of cover, for example, €50,000, serious illness insurance costs more than life insurance. This is because the risk of you getting a serious illness during the term is higher than the risk of you dying during the same period.

The monthly cost of the insurance depends on many factors, but the most important are:

  • amount of cover – for example, €50,000
  • who the insurance covers – it could be single cover for you or joint cover for you and your partner
  • term of the policy -You can choose the term of the policy. But your cover usually ends when you reach 60 or 65, depending on your individual policy – so check with your provider

Your age, whether you smoke, your health and family medical history also affect how much you pay for serious illness insurance. As you get older, serious illness cover is likely to cost more, so don’t cancel an existing policy to take out a new one unless you have a good reason. A new policy may also have more exclusions, particularly if your job or health has changed.

With most policies you have a ‘cooling off’ period, often 30 days, during which you can cancel a policy and get a refund of any premiums you have paid. Always make sure you pay your premiums on time, because if you don’t, your policy could lapse. This means that you would not be covered if you make a claim.

Should you buy serious illness cover as an add-on to your mortgage protection policy?

One of the most common ways to buy serious illness cover is to include it as an extra benefit on a life insurance policy or a mortgage protection policy.

Taking out serious illness cover as an add-on will increase the cost of a life insurance or mortgage protection policy considerably, up to four times the cost in some cases. The extra cost will depend on whether the cover is:

Accelerated means that the policy will pay out if you are diagnosed with one of the listed serious illnesses or die within the term of the policy. It would not pay out twice unless you only receive part of the benefit if you are diagnosed with one of the serious illnesses listed on your policy. Some accelerated serious illness policies let you choose a lower level of cover for the serious illness part of the policy than for the life insurance part.

For example, if you took out a life insurance policy for €150,000, and you choose to include accelerated serious-illness cover of €100,000, this would mean that if you were diagnosed with a serious illness covered by the policy, you could claim €100,000 (the serious illness benefit). If you died during the policy term, your policy would pay out the remaining €50,000 life insurance benefit to your estate.

Additional cover means that the life insurance and serious illness parts of the policy are separate. It is also sometimes called separate cover, double cover or stand-alone cover. If you have a life insurance policy for €150,000, with additional serious illness cover for €100,000, the policy would pay out €100,000 if you were diagnosed with a serious illness covered by the policy within the term. If you died later on, within the term of the policy, it would also pay out the €150,000 life cover. Additional cover is more expensive than accelerated cover. If you are unsure what would suit you best, you could think about getting financial advice.

Can the monthly cost increase?

If you can buy stand-alone serious illness cover for a fixed term or you add serious illness cover to a fixed term life insurance or mortgage protection insurance policy, the premium is fixed for the term of the policy.

However, if you choose an index-linked policy, the premium usually increases once a year to allow for inflation, unless you ask your insurer to stop index linking.

If you buy serious illness cover as part of a whole of life policy, your premium is not fixed and may increase from time to time.

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