Life Insurance and Critical Illness Cover

Do I Need Life & Critical Illness Cover?

Although neither Life or Critical Illness Cover is compulsory, if you have a mortgage and / or a young family it is certainly worth considering.

• 2 in 5 people have no more than £1,000 in cash savings to fall back on according to a 2017 Drewberry survey.
• That means even something like a funeral would be difficult to afford, with the average funeral costing more than £4,000.
• This also leave us underprepared for a serious illness that could require significant time off work – how would we afford this?
• Meanwhile, the same Drewberry survey found that 1 in 4 Brits would still have a mortgage of more than £100,000 to pay if they passed away tomorrow.

A Life and Critical Illness Insurance policy can be used to cover such eventualities, whether it’s to pay for a funeral, repay debts, adapt a home to meet a new disability, or financially support the deceased’s family until they can stand on their own two feet.

Underestimating The Risk Of Dying

We conducted a Health and Protection Survey and found many people underestimate the risk of passing away.

In the table below, we’ve laid out the risk of death in the next 20 years for a healthy male aged 25, 35 and 45.

Setting Up a Life and Critical Illness Policy

There are a vast range of Life Insurance options to consider. Choosing the right type of cover will enable you to secure comprehensive protection at the most cost effective premium.

The Different Types of Life Cover

There are different types of Life Insurance cover that are chosen to cover certain circumstances. It’s important that you choose the right type to meet your needs.

Level Term Life Cover

Level term cover provides you with a fixed sum assured for the entire length of your policy. No matter how long you own your policy for, it will always pay out the sum that was first agreed upon when the time comes to claim.

This type of Life Cover is suitable for protecting an interest-only mortgage or providing financial support to your loved ones after you pass away.

Decreasing Life Cover

Decreasing Life Insurance with Critical Illness Cover will gradually decrease in terms of the sum assured the longer you own the policy, eventually reaching zero and ending.

The cover will decrease at a set rate that you can adjust when you first take out your policy

Decreasing cover is less suitable to protect your family because the payout falls over time. Instead, it is usually used to protect loans and debts that are repaid both in capital and interest terms.

The rate at which your cover decreases is designed to match a repayment mortgage as you pay it off, guaranteeing that your family are able to pay off the rest of the mortgage after your death.

The decrease in cover is what makes it a more cost-effective means of protecting your mortgage loan.

Increasing Life Cover

Increasing Life and Critical Illness policies – also known as index-linked Life Insurance – are intended to keep up with the rate of inflation, ensuring that the value of your policy doesn’t go down in real (i.e. inflation-adjusted) terms over time.

Your cover will increase at a steady rate throughout the duration of your policy, ensuring that your payout doesn’t depreciate.

One thing to take note of about these types of policies, however, is that your premiums will increase at the same time as your cover.

Some insurers will give you the option to forgo an increase on an annual basis if you are unable to afford the new premiums or feel as you though you don’t need it.

Family Income Benefit

If you intend your Life Insurance payout to support your family’s finances, you might consider taking out a Family Income Benefit policy.

This type of Life Insurance policy will pay out differently to a standard policy, providing your family with monthly benefits to supplement their regular income rather than paying out a lump sum.

For some families, monthly benefits are easier to manage. In addition, a Family Income Benefit policy will continue to pay out until your children are out of education at age 18 or at age 21+ if they choose to attend university.

Do I Need to Write My Policy Into Trust?

With a standard Life and Critical Illness policy that is not written into trust, the lump sum that is paid out goes directly to the policyholder or goes to their estate. If the payout is triggered on death, this lump sum could therefore have inheritance tax levied at 40% on it.

Alternatively, you can write your policy to trust which would result in a claim on the policy being paid into a trust before being distributed to the nominated beneficiaries.

When setting up a trust there is often the option to split out death payments and critical illness payments so you would receive any critical illness payment directly. This is often known as a flexible split trust or a discretionary split trust.

The benefit of this is that the payout would not be affected by inheritance tax or delayed by the probate process, which means your loved ones get the full payout and receive it sooner than they would otherwise.

Trusts are complicated stuff, which is why it pays to have an expert in your corner who knows the process and how to correctly write your Life Insurance with Critical Illness Cover into the appropriate type of trust.

Sam Barr-Worsfold
Independent Protection Expert at Drewberry

The Cost of Adding Critical Illness Cover to Life Insurance

Life Insurance with Critical Illness Cover will have a different cost for everyone. There are a range of factors that will influence the cost of your policy – to find out more, try out our Life and Critical Illness Cover Calculator.

Level of Cover

The most obvious factor in the cost of your policy is the level of cover you choose, with bigger payouts leading to more expensive premiums.

While it may be tempting to aim high when it comes to choosing appropriate cover, this can lead to premiums that are difficult to manage and a payout that is bigger than necessary.

The best course of action to avoid this mistake is to align your cover with either the loan you are looking protect or with an estimate of your family’s financial needs after your death.

Length of Cover

The probability of suffering a serious illness or passing away increases the older we get. The longer you need your policy in force the higher the risk the insurer will need to pay out and this is reflected in higher monthly premiums.

Joint or Single Policy?

If you own a joint mortgage or share debt with a partner, you might consider a Joint Life Insurance policy covering both death and critical illness.

This will ensure a payout is received by the surviving partner, or the ill individual, to repay the outstanding loan. It typically pays out on the first instance of death / critical illness, after which the policy ceases.

Waiver of Premium

While some policies will automatically include a waiver of premium, many will offer it as an optional add-on.

Waiver of premium will protect your policy’s premiums if you are unable to work as a result of injury or illness. If you worry that you may be unable to continue paying your premiums if your income stopped for a period of time, it may be a good idea to add it to your policy.

However, considering this cover can cost extra, it’s a decision to consider carefully.

Age

Your age when you apply for your policy will influence what you pay in premiums. This is because, as we age, our health declines and we become more likely to claim on a Life or Critical Illness Insurance policy

The cease age you choose can also have some affect on your policy’s cost and for the same reasons, with a higher cease age adding to your premiums.

Your Health & Habits

Smoking and drinking alcohol excessively can see a hefty sum added on to your premiums. With some types of insurance, smokers can expect to pay nearly double for their policy compared to non-smokers.

In order to benefit from the lower premiums non-smokers receive, you need to be smoke free for a minimum of 12 months before applying for your policy.

Taking part in dangerous activities can also have the same effect. If you have a particularly dangerous occupation or take part in activities and hobbies that may put your health at risk, your policy’s cover and its cost will be affected.

Medical History

The addition of Critical Illness Cover to your policy means your medical history will pay a bigger role in deciding the cost of your policy than it will for straightforward Life Insurance alone.

If you suffer from chronic conditions or have had severe health problems in recent years leading up to your policy application, insurers may either exclude certain conditions under the Critical Illness Cover or increase your premiums to make up for your increased risk of claiming.

How Much Does Life and Critical Illness Insurance Cost?

In the table below, we’ve laid out some sample Life Insurance and Life and Critical Illness Insurance quotes for a healthy, non-smoking office worker of three different ages.

They’re looking for £250,000 of decreasing cover over 25 years. Premiums were collected on March 14th 2019 and represent the cheapest quotes from across the UK market.

As you can see, adding Critical Illness Insurance significantly increases the premiums, especially as we get older, representing the greater risk we present to the insurer.

Critical Illness Cover or Income Protection?

One other option you may want to consider if you’re looking for sickness insurance is Income Protection.

As mentioned, Critical Illness Insurance is designed to pay out for critical conditions as specified by the policy’s terms.

While this would be useful if you had a critical illness as defined in the policy, it doesn’t provide cover for other eventualities where you could become injured or ill in a non-critical capacity.

Is Income Protection More Comprehensive?

Two of the biggest causes of work absences, besides coughs and colds etc., are musculoskeletal issues and mental health problems. These are by no means critical but could nonetheless keep you off work for some time.

Income Protection is designed to pay out for anything that medically prevents you from doing your job (subject to any pre-existing medical history), regardless of whether the condition is critical.

It also pays a regular income rather than a lump sum, which can be more useful to support yourself with over time.

The best policies are long-term and pay out until retirement, so you potentially could claim until you receive your pension.

Compare Life & Critical Illness Insurance Providers

When comparing Critical Illness Cover, look closer at the specific definitions of the conditions covered rather than just the number.

	Aegon Aegon’s Scotland-based UK operations are wholly owned and operated by Dutch insurer Aegon N.V. Cover Type: Level Term / Decreasing Term / Family Income Benefit Maximum Entry Age: 89 years for standard Life cover / 74 years for Life cover with CIC Minimum Policy Length: 5 years CIC: 43 Critical Illnesses Covered (plus 15 optional additional critical illnesses)
	AIG US insurance giant American International Group, Inc. (AIG) was first founded in 1919 and since then has grown to operate on a global scale. It provides a range of protection products for both individuals and businesses. Cover Type: Level Term / Decreasing Term / Increasing Term / Family Income Benefit / Whole of Life Maximum Entry Age: 86 years for standard Life cover / 75 years for Life cover with CIC Minimum Policy Length: 3 years CIC: 45 Critical Illnesses Covered (plus 18 optional additional critical illnesses)
	Aviva Aviva was founded in 1797, but the Aviva brand as it is today was formed in 2000 by the merger of Norwich Union and CGU PLC. Cover Type: Level Term / Decreasing Term / Increasing Term / Whole of Life / Family Income Benefit Maximum Entry Age: 89 years for standard Life cover / 64 years for Life cover with CIC Minimum Policy Length: 3 years CIC: 36 Critical Illnesses Covered (plus 14 additional critical illnesses)
	Guardian Guardian is a relaunched protection brand with a number of unique features to its policies. Cover Type: Level Term / Decreasing Term / Increasing Term / Family Income Benefit Maximum Entry Age: 65 years for Life cover with CIC Minimum Policy Length: 3 years CIC: 74 Critical Illnesses Covered (plus 21 additional critical illnesses)
	Legal & General L&G was formed as an insurance company for lawyers, by lawyers in 1836. It has since grown to become one of the country’s best-known financial services companies. Cover Type: Level Term / Decreasing Term Maximum Entry Age: 77 years for standard Life cover / 67 years for Life cover with CIC Minimum Policy Length: 2 years CIC: 38 Critical Illnesses covered (plus 2 additional conditions)
	Liverpool Victoria LV is the UK’s largest friendly society, with more than 5.8 million customers, 1.1 million of whom are members. Cover Type: Level Term / Decreasing Term Maximum Entry Age: No Maximum Minimum policy term: 5 years CIC: 43 Critical Illnesses covered (plus 20 additional conditions)
	Royal London Royal London previously operated Scottish Provident and Bright Grey as separated brands providing Critical Illness Insurance under the Royal London umbrella. From 2016, both have been merged into the main Royal London brand. Cover Type: Level Term / Decreasing Term / Increasing Term / Family Income Benefit / Increasing Family Income Benefit Maximum Entry Age: 88 years for Life only / 64 years for Critical Illness Minimum policy length: 2 years CIC: 47 Critical Illnesses covered + 20 additional conditions
	Scottish Widows Founded in 1812, Scottish Widows is today part of Lloyds Banking Group. Cover Type: Level Term/ Decreasing Term / Family Income Benefit / Whole of Life Cover Maximum Entry Age: 79 years for standard Life Cover / 64 years for Life with CIC Minimum Policy Length: 5 years CIC: 49 Critical Illnesses covered + 8 additional conditions
	Vitality Vitality entered the UK market in 2007 with a joint venture with PruHealth and PruProtect, part of the Prudential Group. It has since bought out Prudential and is now branded solely as Vitality. Vitality looks at ‘serious illnesses’ rather than critical illnesses, expanding its scope of coverage significantly. Cover Type: Level Term / Decreasing Term / Family Income Benefit / Whole of Life Cover Maximum Entry Age: 75 years Minimum Policy Length: 3 years Serious Illness Cover: 144 serious illnesses covered / Upgraded policy covers 174 serious illnesses
	Zurich Zurich is a Swiss-based global insurance giant, operating in more than 170 countries. It employs around 55,000 employees worldwide, including 4,500 in the UK. Cover Type: Level Term / Decreasing Term / Increasing Term / Whole of Life / Family Income Benefit Maximum Entry Age: 89 years for standard Life cover / 69 years for Life cover with CIC Minimum Policy Length: 5 years CIC: 36 Critical Illnesses Covered (plus 14 additional critical illnesses)

Get Expert Life and Critical Illness Cover Advice

We’re experts at helping people find the right type of insurance for their needs whilst making sure it is obtained at the most competitive premium.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 3900 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.

If it is all getting a little confusing, we are here to help.

Please do not hesitate to pop us a call on 02084327333 or email us at help@drewberry.co.uk.

Samantha Haffenden-Angear
Independent Protection Expert at Drewberry