Critical Illness Cover:
Pays out a tax free cash lump sum if the policyholder is diagnosed with one of the specific illnesses on a predetermined list as part of an insurance policy.
The policy may require the policyholder to survive a minimum number of days from when the illness was first diagnosed. The survival period used varies, however, 14 days is the most typical survival period used.
What is Critical Illness Cover used for:
Critical illness cover was originally sold with the intention of providing financial protection to individuals following the diagnosis or treatment of an illness deemed critical. Critical illness may be purchased by individuals in conjunction with a life insurance or term assurance policy at the time of a residential purchase, known as a 'bolt-on' benefit.
The finances received could be used to:
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pay for the costs of the care and treatment;
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pay for recuperation aids;
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replace any lost income due to a decreasing ability to earn; or even
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fund for a change in lifestyle.
This insurance can provide financial protection to the policyholder or their dependents on the repayment of a mortgage due to the policyholder contracting a critical illness condition or on the death of the policyholder. In this type of product design, some insurers may choose to structure the product to repay a portion of the outstanding mortgage debt on the contracting of a critical illness, whilst the full outstanding mortgage debt would be repaid on the death of the policyholder. Alternatively, the full sum assured may be paid on diagnosis of the critical illness, but then no further payment is made on death, effectively making the critical illness payment an 'accelerated death payment'.
Examples of other conditions that might be covered include:
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Alzheimer's disease
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blindness
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deafness
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kidney failure
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A major organ transplant (e.g. heart, lung, liver, pancreas)
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multiple sclerosis
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HIV/AIDS contracted by blood transfusion or during an operation
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Parkinson's disease
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paralysis of limb
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terminal illness
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Heart attack
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Cancer
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Stroke