Many households are in debt through the likes of credit cards, loans and the mortgage. If the main wage earner is diagnosed with a critical illness and cannot work, they are faced with the burden of how to keep up with these various repayments.

State sickness and disability benefits will provide a basic income, but this may not be enough to pay off all the debts and household bills.

The answer to this issue is critical illness insurance. If you are diagnosed with a critical illness, a policy means you will receive a tax-free lump sum. This can be used towards paying off your mortgage and other debts.

Your illness could require structural changes to your home, or you may want to hire care staff to look after you. The money paid out from a critical illness policy can help fund your extra needs.

What is a critical illness?

When you take out critical illness insurance, the policy will specify what critical illnesses are covered. Common examples of conditions covered include stroke, heart attack, multiple sclerosis and cancer. Some policies also cover disabilities that result from accidents. When choosing a policy, it is important to make sure that you know what is and isn’t covered.

Health problems known at the time of taking out the policy will not be covered. Some forms of cancer that can be treated successfully will not generally be covered either, and any conditions not specified in the policy are not eligible for payment.

What does the policy pay out?

The amount of money that the policy pays out is dependent on the amount insured. Some policies will pay out a smaller amount for the policyholder’s children if they are diagnosed with a critical illness, and some will cover less serious illnesses for a smaller amount.

As soon as the policy pays out, most policies will effectively be cancelled.

Do you need critical illness cover?

The state benefits that you receive if off work through illness range from about £70 to just over £100 a week. For most households, particularly ones with a large mortgage, this will not be enough without protection insurance or adequate savings.

Some employees have group policies that cover employees who have a critical illness, in which case you probably do not need your own policy. Alternatively, you may not need a policy because a partner can pay the mortgage and other household costs.

You could also consider other protection insurance products such as life insurance, income protection insurance and mortgage protection insurance.

The cost

Critical illness premium rates depend on your age, the amount you want cover for, your current health and whether you smoke or have smoked. Your family’s heath history may also be taken into account when calculating premiums. Some occupations are regarded as riskier than others and will mean paying more.

Further critical illness advice

For professional help and advice on critical illness insurance, talk to Ascot Mortgages. We can assess your financial situation and recommend the right insurance policy for your individual circumstances.