8th March 2018
None of us likes to think about falling seriously ill, and it’s easy to push it to the back of your mind and not worry about it. However, if you were to become ill, to the point where you could no longer work, what would happen then? Would you be able to settle your mortgage, cover medical expenses, fund specialist treatments, adapt your home to suit your needs, or pay for care and support services? When you’re a Contractor, you don’t have any employee benefits to help you out in this situation, so if you want to prepare for the future and any illness that might occur, you need to make sure you have appropriate insurance in place. This is where critical illness cover comes in.
Critical illness is a specific policy that covers you in the event of a serious condition or illness that prevents you from working. It can be taken out to cover a whole range of conditions, such as cancer, a stroke, a heart attack, blindness or deafness, and so on. The more conditions that you choose to cover, the more your premiums will be. However, you can craft your policy to suit your requirements, so you’re covered for what you want and need given your line of work and the impact certain illnesses might have.
The policy should also take into account your lifestyle, as some factors might contribute to an increased likelihood of certain illnesses or conditions. It’s important to understand exactly what is covered by your policy, as it’s not always clear-cut – for example, some forms of cancer that are highly treatable, may not be considered a ‘critical illness’. Read all of the small print to make sure that you know you are covered for everything you want to include.
Critical illness cover pays out a large, one-off sum to help you meet your financial obligations after diagnosis, so it’s important to think about how much money you and your family would require. You need to make sure that the amount of cover you have will pay off your mortgage or any other debts, enable you to put something away for the future and to help manage or adapt to your new condition. The higher your cover, the more your monthly premiums will be. As long as you keep paying into the policy, you are covered. Unlike Life Insurance, which pays out in the event of your death, Critical Illness cover pays out on diagnosis, so even if you recover, that money can be put to good use. Most policies will only pay out once, however there are a few exceptions to this.
Critical illness insurance premiums are not tax deductible, so you will need to pay them out of your post-tax income. If paid out of pre-tax income through your company, then they will be considered a benefit. The lump-sum pay-out, however, is tax-free.
The premiums for critical illness cover are higher than life insurance. This is because you are much more likely (two and a half times) to suffer from a critical illness before the age of 65 than you are to die. Therefore, the cost is certainly a factor when you are picking a policy as a Contractor. You should consider carefully what you need to include on your policy against your monthly budget. You can lower your premiums by combining critical illness cover with life insurance, so speak to your adviser about the best package for you.
There are several other insurance products you can use to protect yourself and ensure financial security if you fall ill, injured or pass away.
Relevant Life Insurance: A tax-efficient way to pay for life insurance that ensures your family receive a full payout in the event of your death.
Income Protection: If you’re unable to work and earn due to illness or injury, Income Protection pays you a proportion of your regular salary.
Private Health Care: Helps you get back on your feet faster by providing you services that are unavailable on the NHS.
All content is accurate at the time of publication
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