Be specific and cut the cost of ill-health cover

Protect your family's finances with a simple, single-condition policy

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The Independent Online

No one likes to think about serious diseases such as cancer, but one in six of the UK population has experienced a critical illness, according to the latest Scottish Widows Protection Report, and only 5 per cent of those had any kind of protection policy in place.

Financial planning for the worst-case scenario can be tricky and often expensive, but there are products that keep things simple by offering cash payouts upon diagnosis of specific illnesses.

A large proportion of claims are for cancer and heart attacks so honing in on what's important could be a good move. Gender-specific cancer cover is available from WellWoman/WellMan, for example, while Plan4Life offers cancer-specific policies and AIG offers cover for heart attacks and strokes. These policies are cheaper than traditional critical illness policies because you only pay to cover specific diseases.

With AIG, premiums for a 35 to 39-year-old non-smoker start from as little as £2.99 a month for standard cover providing a cash payout of £25,000, while most critical illness insurers charge a minimum of £6 to £8 per month. You can choose the level of cover, £15,000, £25,000 or £50,000 and spend that money on whatever you want.

"Not everyone can afford critical illness cover, says Hallie Harenski from AIG Direct. "But our Heart Attack and Stroke policy offers low cost protection against two of the major causes of serious illness."

Be warned that most policies have a waiting period of around 90 days before full cover kicks in and prices may rise when you move into a new age bracket, typically divided into five-year age bands.

For belts and braces, underwritten critical illness policies – which are typically taken out with life assurance – will cover many conditions and you can opt for guaranteed premiums fixed for the entire term. "Critical illness is an important protection provision and often consumers find the premium is a stretch on their budget so having a lower sum and less coverage is one serious consideration to get some cover, but I urge consumers to compare the cost to having a full-bodied product which will cover more," says Emma Walker, the head of protection at MoneySupermarket.

You can buy this type of insurance through an independent financial adviser or specialist broker if you want help to find the right policy and to understand any exclusions. Discount brokers are cheaper (because they repay most of the commission they earn and you pay a one-off fixed fee instead) but they operate on an "execution only" basis and cannot give you any advice.

With any critical illness policy you are only covered for the diseases or illnesses specified on your policy although you can expect a range of more than 30 conditions with most insurers, but these will vary from one provider to the next. Complex medical definitions can be a bit of a minefield too, for example, "early stage cancer" may be excluded even if a lumpectomy or mastectomy is required.

You can take out critical illness cover for a specified number of years, perhaps to cover your mortgage, or for life, but again, there is a waiting period of around three months before you can make a claim. You typically receive a one-off lump sum which is tax-free and ranges between £100,000 and £250,000.

Income protection is far more flexible and should be the first port of call for most people as it covers those unable to work due to illness or injury. These policies provide a wage replacement, paying out up to 75 per cent of your gross monthly salary tax-free while you're not earning. Payments usually continue until you get back to work, or retire and, as long as you choose an "own occupation" policy instead of an "any occupation" policy, it will pay out until you get back to your specific job.

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