Serious illness insurance

Serious illness insurance pays you a tax-free lump sum if you are diagnosed with one of the specific illnesses or disabilities that your policy covers. It is also sometimes called ‘critical illness cover’. It is often sold as an extra benefit on a term life insurance, whole of life insurance or mortgage protection policy, but it can also be sold as an insurance policy on its own.

What is covered in a typical serious illness policy?

If you are thinking about taking out serious illness insurance, it is important to realise that it would not replace your income if you were out of work due to long-term illness.
Serious illness insurance will only pay out if the illness is covered by the policy. Many illnesses that would prevent you from working may not be covered by your policy. Even when the illness is covered, the policy pays a once-off lump sum and not an ongoing income.

Not all policies will cover the same illnesses, or common illness, such as angina, back injury and treatable cancers. You should check with your insurer or broker for details of the illnesses covered before you take out a policy.

The list of illnesses varies between insurers but usually includes:

• stroke
• heart attack
• some types of cancer
• coronary artery disease
• multiple sclerosis
• kidney failure
• motor neuron disease
• blindness
• major organ transplantation (including being on a waiting list for transplantation)
• a benign brain tumour
• severe burns

Some illnesses may have additional criteria that must be met for a claim to be valid such as, the illness results in permanent damage or a particular level of severity, for example, a minor stroke may not be covered even though a stroke is covered under the policy. In this case you have had to suffer a severe stroke for the policy to pay out. Any additional criteria will be listed in the policy document.

The Central Bank’s Consumer Protection Code requires firms to explain clearly to you the restrictions, conditions and exclusions that apply to your policy. As well as general exclusions, there may be specific exclusions based on your medical history, job or lifestyle.

Policies vary, but they usually include:

• cover for a number of serious illnesses, listed on your policy, which may include permanent total disability
• limited serious illness cover for your children
• waiting list benefit

If you have a pre-existing medical condition, that is a medical condition that you have had before, you may find it difficult to get cover for that particular illness.

Permanent total disability (PTD)

This is sometimes included in these policies. So, if you become permanently and totally disabled from an illness or condition that is not otherwise covered by the policy, you could claim the serious illness benefit.

There are two types of PTD cover:

• Any-occupation PTD: this means you can only claim if you are unable to work at any job. It means you are permanently unable to do many normal daily activities, such as walking, lifting, bending, writing or speaking. The risk of this happening to you is quite low, so any-occupation PTD is often included in the standard illness list.
• Own-occupation PTD: This means you can claim if you are permanently and totally unable to do your current job. You will usually pay extra for this type of PTD cover. You may not be able to get this extra cover if your job carries a higher risk of disability, for example, if you are a sports professional.

Do you need serious illness cover?

You may want to consider serious illness insurance if you:

• have no other cover for ill health
• are not in paid employment, so cannot buy income protection insurance
• have a mortgage, personal loans or other debts that you would still have to pay if you became seriously ill and possibly unable to earn an income
• have dependants who rely on your income or unpaid work, such as work you do in the home or in a family business

You can claim the benefit on your policy only if you meet the following three conditions:

• the illness you develop is one of the illnesses your policy covers at the time of your claim
• a medical diagnosis confirms that your illness matches the definition of that illness outlined by the insurance company in your policy terms and conditions
• you survive for a period after you are diagnosed – this period may be seven or 14 days, depending on the policy

There are many situations where you may not be covered by your serious illness policy. You will not usually be covered if:

• your illness is judged to be caused by drug or alcohol abuse, a self-inflicted injury or failure to follow medical advice
• your illness existed before you applied for insurance and you failed to say this in your application
• your illness came about because you were involved in dangerous or criminal activities
• you live outside the ‘territorial limits’ of the policy for a certain number of months of the year. The territorial limits may vary from policy to policy but would usually mean all EU countries

Buying serious illness insurance

You can buy serious illness insurance directly from an insurance company or through a broker. To apply for this cover, you will need to fill in a detailed application form, called a proposal form. Some insurance companies offer you extra benefits on their policies, but they usually charge you more for these. The typical extra benefits are:

• personal accident benefit: which gives you a weekly payment for a limited period if you cannot work due to an accident
• hospital cash: which is a daily payment you get if you have to stay in hospital for a certain period. It is paid for each day you spend in hospital as a result of an illness or accident. There is usually a minimum ‘waiting period’ before the cover commences, for example, you may have to spend five days in hospital before the cover will start
• a conversion option: which lets you convert your cover into a new policy when you are older, even if you are in bad health at that stage
• indexation or inflation protection: which increases your cover each year to allow for inflation

Waiting list and overseas surgery benefit

This means the insurance company pays out part of the serious illness benefit if you are put on a waiting list for certain major types of surgery, or if it is essential for you to have major surgery outside of Ireland.

How much does it cost?

For the same amount of cover, for example, €50,000, serious illness insurance costs more than life insurance. This is because the risk of you getting a serious illness during the term is higher than the risk of you dying during the same period.

The monthly cost of the insurance depends on many factors, but the most important are:

• amount of cover – for example, €50,000
• who the insurance covers – it could be single cover for you or joint cover for you and your partner
• term of the policy -you can choose the term of the policy. But your cover usually ends when you reach 60 or 65, depending on your individual policy – so check with your provider
• age – as you get older, serious illness cover is likely to cost more, also there could be more exclusions especially if your health or job has changed. So don’t cancel an existing policy to take out a new one unless you have a good reason
• your health
• your family medical history
• lifestyle choices that could impact your health i.e. smoking or drinking

Always make sure you pay your premiums on time, because if you don’t, your policy could lapse. This means that you would not be covered if you make a claim.

It is the responsibility of the insurance company to ask the relevant questions in the application process so that all the information required is received through these answers. The questions must be in plain intelligible language. The consumer is required to answer fully and honestly all the questions set out in the application process. If you do not, your policy may not be valid and you may be unable to make a claim.

Should you buy serious illness cover as an add-on to your mortgage protection policy?

One of the most common ways to buy serious illness cover is to include it as an extra benefit on a life insurance policy or a mortgage protection policy.

Taking out serious illness cover as an add-on will increase the cost of a life insurance or mortgage protection policy. The extra cost will depend on whether the cover is:

• accelerated
• additional (separate) cover

Accelerated means that the policy will pay out if you are diagnosed with one of the listed serious illnesses or die within the term of the policy. It would not pay out twice unless you only receive part of the benefit if you are diagnosed with one of the serious illnesses listed on your policy. Some accelerated serious illness policies let you choose a lower level of cover for the serious illness part of the policy than for the life insurance part.

Additional cover means that the life insurance and serious illness parts of the policy are separate. It is also sometimes called separate cover, double cover or stand-alone cover.

Additional cover is more expensive than accelerated cover. If you are unsure what would suit you best, you could think about getting financial advice.

Can the monthly cost increase?

If you can buy stand-alone serious illness cover for a fixed term or you add serious illness cover to a fixed term life insurance or mortgage protection insurance policy, the premium is fixed for the term of the policy.

However, if you choose an index-linked policy, the premium usually increases once a year to allow for inflation, unless you ask your insurer to stop index linking.

If you buy serious illness cover as part of a whole of life policy, your premium is not fixed and may increase from time to time.

Is this the best type of insurance for me to buy?

Income protection insurance, although more expensive, usually covers a wider range of illnesses and instead of a lump sum payment, it makes regular payments until you return to work or retire. Income protection may better suit your needs than serious illness cover. If you are unsure what would suit you best, you could think about getting financial advice.

The cost of income protection can be quite high and you may never need to use it. If you never make a claim you will not receive any money back.

Making a serious illness cover claim

If you are diagnosed with a serious illness and have a serious illness policy in place, there are a number of basic steps you should follow when making a claim:

• Check your policy: check your policy document to see whether the illness and its severity is covered under the policy. If you are unsure whether you are covered contact the insurer or broker.
• Complete a claims form: you will need to submit a claims form to your insurer when making a claim. Remember to complete the forms as accurately as possible to avoid delays or refusal of your claim. Depending on the severity of the illness, you may need to contact the insurer or broker directly before completing a claims form. You may be required to submit medical evidence of the diagnosed illness as part of the claims form.
• Get your paperwork in order: your insurer may ask for original documentation such as the original policy document, birth certificate to ensure the person claiming is the policyholder etc. If you are unable to provide original documentation contact the insurer or broker to find out if any alternative documentation can be used.