Serious-illness insurance pays out a tax-free lump sum if you are diagnosed with one of the specific illnesses or disabilities that your policy covers. It is also sometimes called critical-illness cover. It is often marketed as an extra benefit on a life insurance or mortgage protection policy. It is important to realise, when considering this type of cover, that it would not replace your income if you were out of work because of a long-term illness. Some illnesses may be serious enough to prevent you from working full-time but are not covered by serious-illness policies and, even where the illness is covered, the policy pays a one-off lump sum and not an ongoing income.

Do I need serious-illness insurance?

You may want to consider serious-illness insurance if:

But do bear in mind that a serious-illness policy does not pay out an ongoing regular income, so if your illness prevents you from working, it may not be enough to replace your income in the longer-term. You can choose the number of years (term) our policy should last. But your cover usually ends when you reach 60 or 65 - depending on your individual policy - so it is important to check this with your provider.

What is covered in a typical serious-illness policy?

Policies vary, but they usually include cover for a number of serious illnesses, listed on your policy, which may include permanent total disablement and limited serious-illness cover for your children. The list of illnesses covered varies from company to company, but usually includes:

Note Bene: Not all policies will cover all the illnesses listed above so it is important to check with each provider for details of the illnesses that each policy covers. It is tempting to choose a policy that covers the most illnesses. But it is more important to consider the definitions of illnesses. With some policies, your condition would need to be extremely serious before you could claim any benefit. Permanent total disablement (PTD) is sometimes included in these policies.

So, if you became permanently and totally disabled from an illness or condition that is not otherwise covered by the policy, you could claim the serious-illness benefit. There are two types of PTD cover.

• • Any-occupation PTD - you can only claim if you are not able to work at any job. It means you are permanently unable to do many normal daily activities such as walking, lifting, bending, writing or speaking. The risk of claiming for this type of severe disability is low, so it is often included in the standard illness list.
  • Own-occupation PTD - you can claim if you are permanently and totally unable to do your own job. The risk of a claim is higher, so you can expect to pay an extra premium for this type of PTD cover. You may not be able to get this extra cover if your job carries a higher risk of disability, for example, if you are a sports professional.

Children's serious illnesses - Your children may be covered for most of the serious illnesses listed on your policy, and sometimes for other child-related illnesses, such as meningitis. The maximum benefit for a child's claim depends on the policy, but it could be, for example, 50% of your cover or €25,000, whichever is less. Some policies also give you waiting-list and overseas-surgery benefit. This means they pay out part of the serious-illness benefit if you are put on a waiting list for certain major types of surgery or if it is essential for you to have major surgery outside of Ireland.

What illnesses are not covered on my policy?

Most serious-illness policies will not cover you for many of the most common illnesses that prevent people from working. These include:

Policies that cover heart attacks might exclude a related condition, such as angina. So, even if you develop an illness that is serious enough to prevent you from working and earning an income, your policy might not pay out any benefit.

What additional optional benefits are available?

Some insurance companies offer extra benefits on their policies, but they usually charge you more for these. The typical extra benefits are: personal-accident benefit, which gives you a weekly payment for a limited period if you can't work because of a disability caused by an accident; hospital cash, which is a daily payment you get if you have to stay in hospital for a certain period (it is paid for each day you spend in hospital after a certain time - for example, four days - because of an illness or accident); a conversion option, which lets you convert your cover into a new policy when you are older, even if you are in bad health at that stage; and indexation or inflation protection, which increases your cover each year by the rate of inflation. If you are considering indexation (also called index-linking), ask about the rate of increase in your premium and the rate of increase in your benefit. Many serious-illness policies are index-linked as standard. If you do not want this, you should contact your insurance company and discuss it with them.

Do I have to pay tax on my benefit?

The benefit that is paid out if you are diagnosed with one of the serious illnesses covered by the policy is tax free. You will not have to pay tax on the lump sum.

Can I add serious-illness cover to a life insurance policy?

One of the most common ways to buy serious-illness cover is to include it as an extra benefit on a life insurance policy or a mortgage protection policy. Under this type of combined policy, the extra premium you pay to include serious-illness cover depends on whether the cover is: accelerated; or additional (separate) cover.

You should seek independent professional advice so that all policies can be compared and contrasted relative to your requirements. You can contact us here.