Critical Illness insurance questions and answers

What is the difference between Critical Illness insurance and Permanent Health insurance (PHI)?

Critical Illness insurance pays one lump sum regardless, whereas Permanent Health Insurance pays a regular income. While Critical Illness insurance usually pays out between 14 and 28 days after the diagnosis, with a Permanent Health Policy usually starts paying you an income after a period of several months. Likewise, although critical Illness insurance enables you to keep the money, even if you make a full recover, Permanent Health Insurance may only pay you while you are unable to work, or for a fixed period of time, according to your policy. The two complement each other, which is why many people choose both Permanent Health Insurance and Critical Illness insurance to run side by side.

Can I have Critical Illness Insurance included in my mortgage protection policy?

Critical Illness insurance can also be included in your mortgage protection policy to take away the burden of your mortgage payments in the event of a serious illness. If you have mortgage protection it may be advisable to have a separate 'stand alone' Critical Illness Insurance policy to make sure that in addition to your mortgage being paid off you has enough money to cover your income and other expenses.

How much Critical Illness Insurance cover do I need?

First, you need to decide what kind of lump sum you need if you were diagnosed with an illness that could force you to stop work, or needed to make major changes to your home or lifestyle. You need to work out how much you'll need to pay off a major debt such as your mortgage or other loans as well as how much you'll need to replace your income and your current standard of living.

You'll also need to consider the cost of specialist care, such as nursing support at home as well as modifications to your home or car. This will give you a one-off, plus annual expense figure from which you would deduct other sources of income, such as a partner's wage, an early pension or investment income. You then have to decide how many years you want your Critical Illness Insurance lump sum to cover which, multiplied by your annual and one-off expenses gives you the size of the lump sum you need to insure yourself for.

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