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Critical Illness Payout Rates

The reason people look to purchase Critical Illness Cover is that during those times you are diagnosed with a serious medical condition, you want to spend the time concentrating on your recovery without the additional stress of worrying about your finances. That being the case, the last thing you want is for your insurance policy not to payout.

In addition to that, cover will of course come at a cost, requiring monthly or annual premium payments, so if you’re going to be making these regular payments, an important part of your decision-making process will be what is the likelihood of making a successful claim.

Here we look at the payout rates of Critical Illness Cover so that you know when and when not to expect a paid benefit of this insurance policy.

When does Critical Illness Cover pay out?

Critical Illness Cover pays out a lump sum that can be used to provide financial relief when you have been diagnosed with a severe medical condition that impedes your ability to work. This can be used however you want, including for mortgage payments, household bills, or for private medical treatment.

Whilst terms and conditions vary between all insurance providers, Critical Illness policies will cover in some degree the three “core illnesses” of cancer, heart attack and stroke. The extent of coverage provided will be determined by the package you have decided to purchase, the insurance provider you choose, and also your personal circumstances and medical history.

In terms of specific illnesses that are covered by your policy, these vary from insurer to insurer but typical illnesses covered are listed below:

Typical Conditions Covered

Alzheimer’s disease

Aortic surgery

Aplastic anaemia

Bacterial meningitis

Benign brain tumour

Blindness

Cancer (life-threatening)

Coma

Coronary artery- bypass surgery

Deafness

Heart attack

Heart valve replacement

Kidney failure

Loss of independent existence

Loss of limbs

Loss of speech

Major organ transplant

Major organ failure on waiting list

Motor neuron disease

Multiple sclerosis

Occupational HIV infection

Paralysis

Parkinson’s disease

Severe burns

Stroke (Cerebrovascular accident)

This is not necessarily the list for every insurer, but usually if you receive a diagnosis of one of these illnesses and have paid your premiums on time, you should receive your critical illness cover payout.

Why might my critical illness cover not payout?

There are various conditions that have to be met and some scenarios when your payout will not be made:

  • If you have failed to keep up with your scheduled premium payments and miss a payment for more than a certain number of days (usually a month)
  • If your application form was filled out incorrectly with errors
  • If existing illnesses, that could be related or a contributing factor to a critical illness diagnosis were not declared on your initial application
  • The illness is not one of the critical illnesses listed on your policy document
  • Sometimes a benefit such as one for an extended stay in hospital will be limited or even not paid if caused by a policyholder’s alcohol or drug use
  • If you have not made a claim before policy expiry

How much does it payout?

The amount of payout from your Critical Illness Cover will be determined by how much cover you elected to purchase.

For a lot of people, the Critical Illness Cover they purchase will be used for big-ticket items such as mortgage payments if their ability to work is hindered by the diagnosis of a serious illness. That being the case, they might have bought a policy that covers the entirety of their remaining mortgage.

You might end up receiving a smaller payout if your illness isn’t as far advanced or as debilitating in comparison to other illnesses listed. If your policy includes Critical Illness Cover for Children and your child is diagnosed for a covered diagnosis, this will most likely result in a smaller payout, but a payout nonetheless.

What is the average critical illness cover payout?

When making a claim, the majority of the policyholders are successful and receive a substantial payout. Data from the ABI (Association of British Insurers) shows that in 2018, over 16,000 claims were paid, with 92% of claims made resulting in successful payouts. The average value of claim paid was over £70,000 with the total value of claims paid out by insurers for Critical Illness Cover being £1.1bn. As you can see, these figures tell a positive story for this type of cover, and you should be rest assured that chances are very much in your favour that the policy will respond when you need it to.

Product Claims Paid % of New Claims Paid Total Value Paid (000s) Average Value of Claim Paid
Critical Illness 16,452 91.6% £1,166,872 £70,925

How do insurers make payouts?

In the unfortunate event you are diagnosed with a covered illness, and you make a claim on your Critical Insurance Cover, the chances then are good that you should receive a payout from your insurer. How are these payouts made and how do you receive the monies? You should receive the payout in one lump sum and as an added bonus it should be free from government tax.

There are also options to put this payout in trust. Putting your policy in trust means that instead of the lump sum payout going directly to your legal estate (essentially the sum of your assets), it will go directly to your named beneficiaries. This means your payout will be excluded from inheritance tax calculations, and your beneficiaries can utilise the sum in a more tax efficient manner.

Once received, how this lump sum payment is used is completely up to you. Mortgage, bills, even a holiday abroad to recover - anything that helps your physical and mental recovery with this financial relief.

It is important to note that once a claim is made and payout received, that will bring your Critical Illness Cover to an end. Upon expiry, you will of course be able to apply and purchase a new policy, but again it is imperative you update your application with any new medical and critical illness cover claims history. If not, the risk remains that future payouts could be compromised.

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