The Purpose of Critical Illness Insurance

Critical Illness cover is a form of insurance product whereby the policy holder receives a lump sum cash payment from the insurer once diagnosed with any given illness stipulated in the policy. Unlike full life insurance, it does not require the policy holder to die.

In cases where life insurance does not form part of the policy, then the policy holder's illness must not prove immediately terminal and a period of 28 days usually has to elapse following diagnosis in order that a claim can be made. Many of the critical illnesses covered by these policies are not immediately life-threatening anyway due to medical advances and a minor heart attack can strike at a relatively young age without the sufferer's life being affected too drastically. The critical illness policy would still pay out so the advantages are obvious.

As well as being a generally sensible precaution, a critical illness policy should be a serious consideration when taking out a mortgage because it can allow the entire mortgage to be written off immediately upon diagnosis of a serious condition. Critical illnesses are relatively survivable it is important to consider the financial burdens faced by people who have had, for instance, a heart attack, or a stroke. The mortgage should be the last thing on a person's mind when they have been diagnosed with a critical illness.

Whilst most critical illness policies do pay out a lump sum you can get some plans that pay out a monthly or annual benefit. This means that it can be used as an income replacement policy. That said Critical illness insurance is no substitute for income protection insurance as the trigger point for a claim is diagnosis of a critical illness and income protection policies can pay out if you are just off work due to sickness and disability which could be considered far less than what is needed for a critical illness claim.

The sort of conditions covered under a critical illness policy range from the most common such as heart attack stroke or cancer to the more unexpected such as permanent blindness, permanent deafness, kidney failure, major organ transplants and diseases such as Alzheimer's disease.

The first critical illness policy was created in South Africa by a Dr Marcus Barnard. He launched the plan in October of 1983 and he called it Dread Disease Cover. Since that date the whole concept and need for this type of insurance has spread right across the globe to many market places, and has equally been known under many guises such as living insurance and serious illness insurance.

The person taking out the policy must be fit and healthy at the outset because existing health problems are an obvious warning to the insurer that they are likely to lose money by underwriting the client. In that sense the cover must be seen to be precautionary with the insurer suspecting no great likelihood of a policy being honoured.

Policies are easier and more affordable to take out at a young age because incidence of illness is lower, and the insurers see a lower risk. The advantage of taking out a policy when young is that the premium is lower and the payments are spread over a longer period of time. Like any type of insurance, the cost is based on the probability of a payout.

In summary critical illness insurance is a very valuable plan that can be quite costly the older you get for obvious reasons. It can be claimed as a lump sum, monthly or annually. It can have life cover attached to it which would rule out the need to survive the condition for more than 28 days. Across the globe it is concerned one of the most important versions of life cover and a must as an add-on to any life insurance contract.

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