Ideally you should calculate the amount of cover on the same basis as you would calculate life insurance cover (see article on life insurance for more information). When calculating the amount of cover, bear in mind that employers do not usually provide critical illness cover as part of your employment package. You may therefore find that the amount of critical illness cover you need is actually higher than the amount of life cover you need.
However, critical illness insurance can cost more than life insurance, as the chance of you suffering from one of the listed illnesses is much higher than your chance of dying during the period of your policy. You may therefore prefer to choose an amount of cover that offers some protection, but which is also affordable.
The term of the cover should match the period of your earning potential, during which you (and your family) are financially dependent on what you earn. Matching the term to your planned retirement date is probably the right answer for most people. However, there may be an upper age limit on the policy you are applying for.
You may also have the option of choosing an amount of cover that increases annually in line with inflation, in which case, the premium will also go up on an annual basis.
Applying for cover
Critical illness insurance usually has a limited range of ages you can cover, typically from age 18 to age 65 or 70. There is also likely to be an upper cap on the amount of cover.
When shopping around for critical illness, make sure you compare like-for-like. The cheapest plan may be cheap because it covers fewer conditions or has more restrictive rules on when it will pay out.
Make sure you read the policy terms and conditions before you apply. Although reading a lot of small print is a pain, it will help you understand how critical illness insurance works and whether that particular policy meets your needs.
As when applying for life cover, it is important to be truthful and complete in the answers you give, because false or incomplete information provided on the application form could result in a claim being rejected.
Making sound financial plans is important and the decisions you make can be life changing. If you need support, you may wish to speak to a financial adviser. If you do not have one, you can find one near you at www.unbiased.co.uk. Whatever advice service you choose, there will be a charge. The amount and payment terms will be explained to you by your adviser.
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