7 - Critical Illness Insurance

Question 1

Basics of critical illness insurance

Answer 1

It pays out a lump sum on diagnosis of a specific set of specified illnesses.

Care must be taken to ensure it is appropriate for the customer, income protection will provide more reliable protection against a long period out of work and is less specific about eligible conditions.

Question 2

Types of policy: stand-alone or combined

Answer 2

Stand-alone policies are available on either term or whole-of-life basis. Can be reviewable or guaranteed.

Or can be included within a life policy. In this case they effectively become accelerated death payouts. If you get a critical illness the policy pays out as if you had died and doesn’t pay again when you do die.

Question 3

What type of trust is required for a combined critical illness and life policy?

Answer 3

A split trust is required as the payout goes to the life assured in the case of critical illness, but the beneficiaries in the case of death.

Question 4

CIC features

• Survival Period
• Children’s Cover
• Life cover buy back
• Waiver of premium

Answer 4

• Survival period - Usually 14-30 days, this is the time you must survive after diagnosis (otherwise it’s not considered a critical illness but just a death)
• Children’s Cover - Additional sum assured paid out if your child is diagnosed
• Life cover buy back - For joint life & CIC policies, this allows you to take out additional life cover after critical illness diagnosis where usually you just get paid out and the policy is over
• Waiver of premium - Means they don’t charge you a premium during a period of illness (or sometimes unemployment).

Question 5

CIC Features

• Reinstatement on divorce/separation
• Total & permanent disability
• Terminal illness cover

Answer 5

• Reinstatement on divorce/separation - Allows a policy to be split in half in case of divorce/separation
• Total & permanent disability - A general definition not relating to a specific condition that pays out if quality of life deteriorates below a certain level (definition decided by insurer, eg “unable to do a suited occupation ever again”)
• Terminal illness cover - Can allow sums to be paid out during the life of the assured where their life expectation is below 12 months

Question 6

Which illnesses are included and how are they defined?

Answer 6

Each insurer decides what illnesses are included and has their own definitions.

Question 7

Common exclusions

Answer 7

Common exlusions are the same as income protection:

• Alcohol or drugs;
• Criminal acts;
• Flying;
• Hazardous Sports;
• In the case of childrens cover - preexisting conditions