Critical Illness Guide

As a contractor, you have the ability to enjoy the benefits of flexibility without the restrictions of permanent employment. However, like all workers, illness is unavoidable and can impact on your financial situation.

It is important to consider what would happen if you are diagnosed with a critical illness. You don’t have access to the security of a permanent employment package and the benefits that come with it, such as Statutory Sick Pay (SSP).

How will you be able to protect your current lifestyle and the financial wellbeing of your dependents?

What’s in the guide?

• Why you might need Critical Illness cover
• How Critical Illness cover works
• The difference between Critical Illness cover and Income Protection
• What to look for in a Critical Illness policy
• The types of policies available

Introduction

As a contractor, you have the ability to enjoy the benefits of flexibility without the restrictions of permanent employment. However, like all workers, illness is unavoidable and can impact on your financial situation.

It is important to consider what would happen if you are diagnosed with a critical illness. You don’t have access to the security of a permanent employment package and the benefits that come with it, such as Statutory Sick Pay (SSP).

How will you be able to protect your current lifestyle and the financial wellbeing of your dependents?

Why you might need Critical Illness cover

As a contractor, you work in a challenging commercial environment, and as we know illness is unavoidable. However, when these two factors are combined, financial pressure can ensue quicker for contractors given the lack of employee benefits. Over half of all recorded deaths in the UK are related to more serious illnesses, such as heart disease and cancers.* These are two common critical illnesses a policy would cover, with others including strokes and Multiple Sclerosis (MS).

The effects of these serious conditions are now treatable thanks to modern medical advances. However, these same illnesses can often leave you in a reduced state of health.

Along with the added stress of monthly bills, debts and mortgage repayments, your personal and financial health may be severely affected causing longer recovery periods and ultimately more stress.

Video: See how our Critical Illness Cover service helped Elaine support her family when she was diagnosed with cancer. Watch now

*Based upon mortality data for 2014 which attributed 27% of all deaths that year to cardiovascular disease, and 29% to cancer in the same year.
Data published in ‘Cardiovascular Disease Statistics, 2015’. Published by the British Heart Foundation.

What is the solution?

You can protect yourself from the potentially devastating financial consequences of such critical illnesses.

For a relatively small regular monthly premium a contractor can arrange for a lump sum to be provided simply on diagnosis of the illness. These funds will help to pay for a period of recovery/ rehabilitation, pay for changes to home or car to accommodate diagnoses that may include a reduced state of mobility, or go towards maintaining your independence. Without, perhaps, the burden of your mortgage and with money in the bank you can then decide the best option for you and your future health.

How does a Critical Illness policy work?

A Critical Illness policy works in a similar way as a Life Insurance policy, as it will pay out a tax free lump sum. However, with this cover it will be on the diagnosis of a serious illness rather than on death, so you can use the policy to clear your mortgage or other debts, or fund changes to your lifestyle.

The good news is that even if you fully recover from the condition you will not have to pay back the lump sum.

Income Protection vs. Critical Illness cover

Critical Illness cover can go hand in hand with Income Protection, as the latter pays a monthly income in event of an illness, which would stop once you were assessed as having made
a satisfactory return to health. Unfortunately, this early suspension of the payments on an Income Protection policy means you’re forced back to work, perhaps prematurely from a psychological perspective.

The lump sum payout from a Critical Illness policy would be yours to keep, regardless of a return to some measure of good health and could maybe allow for some changes to your work pattern or career choice. Again these changes could be significant enough to help you to avoid a re-occurrence of the illness, as a second bout of many of the conditions can prove potentially fatal.

What to look for in a Critical Illness policy

When looking at Critical Illness insurance, it’s not just about finding the cheapest cover, but finding the one that provides the right cover for you. To find out what a policy will cover in terms of claims, look at the policy’s summary.

However, always looking beyond the policy summary is also a good idea, as it enables you to find out what the policy will really cover in the event you need to make a claim, for example:

• Medical definitions of what is covered are very important – these must be comprehensive enough to be of practical use to you in the event of a claim. It may be that certain cancers are not included or terminology is hard to decipher, so it’s a good idea to go through everything beforehand
• Checking whether the provider has a good track record of paying out claims. With life cover alone you’re either dead or you’re alive, and so there’s less question of whether an insurer can avoid paying benefits out, but with a Critical Illness policy the definitions of illnesses that will trigger a payout must be carefully considered
• Premiums must also remain affordable throughout the term of the policy so that protection can also be maintained as you get older and are even more likely to fall ill
• Whether children and dependents are covered, as this may mean that if they fall ill they will also be covered under your policy and you will receive payment to help care for them

Types of Critical Illness policy

There are four main types of policy available to take out depend- ing on your circumstance and needs. These include:

Decreasing Cover

The level of cover you are covered for will reduce in line with a liability (i.e. a repayment mortgage) or any other large debt.

Level Cover

This level of cover offers a constant level of cover (i.e. for an inter- est only mortgage where the debt doesn’t reduce), so if you are covered for a specified amount for the whole term of the policy.

Family Income Benefit (FIB)

Ordinarily the policy will pay a lump sum, but if you feel one-off payments may not be the right choice for you and you would prefer to insure yourself for a set term (i.e. have the benefit pay- able annually or monthly) if you fall ill within the term. This way it may be easier for you or a partner to budget.

Increasing

The premiums you pay and the amount you are covered for are linked to the Retail Prices Index (RPI) and therefore maintains the value of your cover over time.

Add On – ‘Waiver of Premium’ benefit

An additional ‘Waiver of Premium’ benefit is recommended as it ensures that premiums are maintained by the insurer if you suffer a less serious illness that has meant that you are unable to work for 6 months or more.

Often the first casualties of a tightening budget brought about by loss of income are insurance premiums, and it’s vital that cover is maintained in such circumstances because it may be more likely that such long term ‘minor illness’ will ultimately trigger the lump sum payout of a critical illness policy.

Next steps

To get more information or to speak to our expert team contact us on

01489 555 080

or email us at enquiries@cmme.co.uk