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How Much Critical Illness Cover Should You Buy?

November 27 2019 5 min read Specified Illness Cover

 

how much critical illness cover?

Critical illness.

It’s a two-word pairing that strikes fear in your heart.

Like terminal cancer and heart disease.

Or Boris Johnson.

All equally calamitous harbingers of doom.

But seriously, Critical Illness Cover, as the name suggests, is something you never actually want to cash in because it means…well, that you’re critically ill.

And when you think of critically ill, no doubt you go straight to visions of paralysis and comas and twisting tubes keeping you alive.

A lot of these terrifying illnesses are likely covered by Critical Illness Cover, which is quite possibly why you’re here.

Hello.

Nice to meet you.

Welcome to the article that will help you to insure yourself should you catch a dose of heart disease. Or Boris Johnson.

But first…

What is Critical Illness, and what does it cover?

Critical Illness Cover is a wearer of many hats. Like a few other Life Insurance terms, it’s got a whole bunch of different names that all mean the same thing.

It’s also known as Serious Illness Cover and Specified Illness Cover.

In some circles, it’s also known as the ‘oh shit’ money.

In short, Critical Illness Insurance doesn’t stop bad things from happening…it just makes them more manageable.

For those yet to be indoctrinated into the cult of insurance (it definitely isn’t a cult you’ll hear the insurers say – but isn’t that exactly what a cult would say?):

Critical Illness Cover is a type of insurance that pays you a TAX-FREE LUMP SUM if you fall ill with any of the illness specified in your policy.

It can be a bit sneaky in that the illnesses it covers are specific (hence why it’s called specified illness cover). For example, you might have a heart attack, but it might not be severe enough to get a payout. 

As for what is covered, it varies from insurer to insurer. Zurich Life, for example, pays out the full lump sum for 53 illnesses, and a partial payment of €15,000 to 29 milder but still life-changing diseases. 

And here are the illnesses they cover:

The Big Three – Cancer, Heart Attack & Stroke

These illnesses account for approximately 86% of all claims paid.

The Next Eight Serious Illnesses

Around 10% of all claims are down to

So 96% of all claims are down to 11 illnesses.

The Remaining Serious illnesses

These ones only account for 4% of all claims. And look at how many there are!

For me, most of these are window dressing, they give the insurer the right to claim they cover a gazillion illnesses…but there’s feck all chance of you getting one.

How many people do you know with Necrotising Fasciitis (flesh-eating disease).

list of serious illnesses

illnesses list

And finally Partial Illnesses (we’ll discuss below)

partial payment crit

The kicker, however, is that pretty much all of the specified illnesses come with caveats: blindness must be permanent and irreversible; cardiac arrest has to have had the insertion of a defibrillator; Crohn’s disease needs to be of a certain severity.

And no, it’s not just Zurich Life who are on this epic attempt to flee from responsibility; all the insurers are much the same. For example, Royal London covers 52 illnesses fully, with partial payment for a further 33.

But again: watch out for the caveats.

Like, it’d be a bit of a sickener to pay out for cover only to go into cardiac arrest and have a claim denied because you weren’t defibrillator-ed.

You’d probably keel over with another heart attack if you depended on the insurance to cover your hospital bills and time off work.

But wait…does that mean I shouldn’t get Critical Illness Cover at all?

Well…no.

Getting struck down with a Critical illness is costly, and your policy 100% covers the horrible ones.

Did you know cancer can cost you €2,500 per month?

The Irish Cancer Society estimates it costs €1,000 per month to pay for cancer-related bills such as medicine, transportation, parking and heating.

Yikes.

Plus an estimated average loss of income of €1,500 per month as you give up work or reduce your hours. Imagine trying to work while enduring gruelling rounds of chemo.

So you’re down €1500 in income and up €1000 in expenses.

Realistically, would you be able to come up with the extra €2,500 per month for your treatment? That’s €30,000 a year.

Even worse, from a recent article in the Journal:

The financial strain led to serious resentment from my husband and the breakup of our marriage in the end

https://www.thejournal.ie/cancer-patients-cost-4906186-Nov2019/

Look, I’m going to give it to you straight: if you can afford it, Income Protection is a better shout. However, it’s more expensive so if you need some cover, or if your employer is generous enough to already offer income protection at work, go with Critical Illness Cover. It’s cheap enough that it won’t make a big difference to your wallet while providing enough of a cushion that it absolutely could be a lifesaver if you need it.

Which leads nicely onto:

How much Critical Illness Insurance Cover do you need?

If we go off the above example of cover for cancer treatment, €30,000 is a good number. Obviously, if you earn and spend more, it’s a different set of factors (one year’s after-tax income at a minimum)– but for most people, those 30gs are a good shout for decent cover without breaking the bank.

But if you can afford it, I’d stretch to €50,000 to guarantee the maximum payout should you get a partial claim illness (see the list above)

You see the maximum payment on a partial/less severe illness claim is 50% of your serious illness cover amount to a maximum of €25,000. If you have €50,000 cover, you can get the maximum €25,000 payout.

Whereas if you buy €30,000 cover, the max you’ll get is €15,000 should you suffer one of the less severe illnesses listed on your policy.

How do I buy serious illness cover?

You have a couple of options here. You can buy Critical Illness Cover on its own, or you can buy it as an add-on to Life Insurance.

Let’s look at an example of a healthy 40-year-old couple who are getting dual Life Insurance.

In this first example, they’re just buying Life Insurance – dual cover, €250,000 over 30 years.

It’ll cost them:

life insurance quote

Remember: that’s just Life Insurance.

If they throw in €30,000 Serious Illness Cover as well, it’s:

serious illness quote

The difference there is about €20 – that’s a fiver a week.

Imagine how grateful you’d be for that extra fiver if you got cancer and suddenly had to cough up that €2,500 a month.

Conclusion

My advice to you is this: if you can afford it, go for Income Protection. You can insure up to 75 per cent of your salary until you retire if necessary. However, if you can’t afford it and you’re getting Life Insurance anyway, it’s probably smart to spend the extra €20 a month. That’s the cost of two bottles of wine or two packs of fags.

And at least you know spending that money on insurance instead of fags won’t give you cancer.

Probably. No one has done any studies on the effects of insurance as a carcinogenic yet.

If you’re going with the option of bundling Life Insurance and Critical Illness Cover, have a read of the additional benefits each insurer offers – for example, Royal London offers extras like Helping Hand Benefit while Zurich Life has a more affordable cancer-only option while Aviva has a scheme to get a second medical opinion.

On a final note on the bundling front, if you’re buying cover from your bank for Mortgage Protection or Life Insurance and they do the whole “by the way, we also do Serious Illness Cover; you should go for it too”, you should turn and runnnnnn.

Why? In the event of a payout, your bank gets the money.

Yeah, I know.

So in summary:

  • Income Protection is a better bet, but Critical Illness Cover is a million times better than just life insurance
  • It’s quite cheap, bundled with Life Insurance.
  • Don’t get cover from your bank.
  • €30,000 of Critical Illness Cover is plenty. €50,000 is ideal
  • Make sure you know what diseases are covered and what the caveats are.
  • Read through all the additional benefits and consider that strongly in your decision – again, if you can afford it, paying a little more could be worth it down the line.

Over to you…

You don’t have to go nuts and spends loads on Critical Illness Insurance Cover.

Get a quote here for €30,000 and see if it’s within budget.

If it is, great – if it’s even less that you thought then maybe consider Income Protection too/instead.

When it comes to protecting yourself, my advice is to buy a little bit of everything.

Let me know if I can help.

Complete this questionnaire and I will send you a personalised recommendation based on what I think you need. If you’d prefer a quick chat first, you can schedule a call here.

Talk to you soon.

Nick

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