What is critical illness insurance and should you have it?

Critical illness insurance in a COVID-19 world

3 minute read

What role can critical illness insurance play in a world shaken by the pandemic?

Becoming critically ill can lead to a daunting financial burden due to high medical costs or loss of income. Standard health insurance will generally cover costs of hospital and other medical expenses. But what happens if you are hit by an illness that requires a longer period for recover or you need take more than incidental time off work for treatment? 

Critical Illness Insurance is a form of insurance that pays out a lump sum when the person insured is diagnosed with a critical illness covered by the policy. The lump sum can be used to pay for medical bills or other non-medical expenses. 

Research has shown that health and wealth are closely linked, and Aegon seeks to support our customers to lead healthy and financially secure lives up to and into retirement. We all hope never to have to face a serious medical condition, but it can and does happen. 

Read the conditions and small print

Critical illness can come in all manner of shapes and forms, including stroke, heart attack, cancer, organ failure, Multiple Sclerosis and Alzheimer's disease. Critical illness insurance coverage tends to be very specific about the types of illnesses covered and eligibility criteria tend to be quite strict. This type of policy should be viewed as a reasonably priced hedge against a specified number of conditions. The terms of the policies specify the limited number of conditions covered and when pay-outs are made.

More recently, some policies may have been updated for COVID-19, while others may not, but certain of the most serious consequences of the infection may be covered. 

You can take out critical illness as a standalone policy or as part of a life insurance package. Check whether you can arrange coverage as part of the benefits package offered by your employer. 

Insuring against major illness

Aegon's core business units offer critical illness coverage in their respective markets, often through employers. Given the high costs associated with a serious illness in the US, Transamerica, offers critical illness insurance separately or as part of its Group supplementary health and disability insurance.  

The insurance provides coverage in the event of major illnesses like stroke, a heart attack, organ failure and Alzheimer's Disease. Transamerica says the coverage enables policyholders to prepare for unwanted occurrences: "No one expects to have a heart attack or stroke, the reality is that it happens." In fact, statistics show that one out of every six Americans will suffer a stroke. Having critical illness coverage eases the financial burden and allows the patient to focus on recovery and health.

Our business in the UK covers a total of 39 critical illness conditions. Eighteen of them exceed the model definitions set out in the Association of British Insurers (ABI). Aegon UK announced in a report that it has paid out £34.4 million in critical illness claims in 2020, matching its record of 93% of claims paid out  in the previous two years. The average claim value was £76,280 and the highest claim of 1.5 million went to a customer diagnosed with cancer. Most claimants were women (51%), and cancer was the main condition covered (62%), with heart attacks (12%) and strokes (6%) also featuring prominently.

The uncertainty at the beginning of the pandemic led Aegon UK – like other insurers - to introduce some restrictions on life and critical illness insurance coverage. All temporary coronavirus-related medical rating restrictions have now been removed. Our UK business has returned to its pre-pandemic maximum ratings for life cover taken out up to age 65 and has increased the maximum ratings it will offer for life cover taken out up to age 79.

Acknowledging the success of the UK Covid vaccination program, Aegon also confirmed that it would consider more applications from higher risk customers, such as those with diabetes, higher BMI, and respiratory conditions.

Get professional advice

Your family may have a history of heart conditions or perhaps you just want the peace of mind of knowing you are financially prepared for the unexpected. Nevertheless, this article is intended purely as general information. it is always prudent to consult with your doctor and a financial adviser before signing up for any financial product.