Critical illness cover is a form of insurance that pays out a tax-free lump sum if you are diagnosed with an illness or medical condition.
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If you are diagnosed with a critical illness, it can have a severe impact on your finances as you may need to take time off work for your treatment and recovery.
Marks & Spencer Critical illness insurance is designed to help, paying out a lump sum payment when you are diagnosed with one of the specific critical illnesses covered by your policy.
Marks & Spencer Critical illness cover is usually sold alongside a life insurance policy. As such, the structure of the two types of cover are quite similar.
When taking out Marks & Spencer critical illness cover, you will need to work out how much cover you need and how long you want the policy to run for. So, for example, you might determine that you need £100,000 of cover, to run for a 30-year term.
It’s a good idea to sit down and work out what sort of sums your family would need in order to live comfortably if you were to develop a serious illness and no longer be able to work.
The main driver for many people buying Marks & Spencer critical illness insurance is to clear their mortgage balance if they become seriously ill, but it's worth taking into account any other debts, household bills you pay as a homeowner and the potential costs that would be incurred from your medical treatment.
You may also want to put aside a few years' worth of your salary to give you the option of not working for a long period.
You can select whether you want the cover to increase over the course of the term, so that it keeps pace with inflation. Or, if your main concern is being able to cover the cost of the mortgage, then you can go for decreasing cover.
The Marks & Spencer critical illness policy pays out once and then ends.
The exact illnesses covered by critical illness policies vary between providers. However, certain illnesses are covered as standard by most insurers.
These include: Cancer, Heart attack, Stroke, Organ failure, Multiple Sclerosis, Alzheimer’s disease, Parkinson’s disease.
You must tell the truth in your application about any pre-existing conditions - if the insurer finds out later on that you weren’t entirely honest, it could void your entire policy.
Having a pre-existing condition does not mean that you will be unable to find someone that will offer you critical illness insurance.
However, it does mean that any cover you do find is likely to be more expensive, and may have more extensive exclusions than for those people who do not have a history of medical issues.
When you make a successful claim on your policy, the money is paid out in a single lump sum.
The exact time taken to make the payment will vary between providers. Aegon, for example, says that it will take up to eight weeks.
Contact your insurer as soon as you receive the diagnosis so that they can talk you through the claims process and how long it is likely to take before you receive the money.
Payments from a critical illness policy are not classed as income, so you will not have to pay any income tax on the money you receive from your insurer.
Your loved ones could face a potential inheritance tax bill, however. If you take out a joint life insurance and critical illness policy, and make a claim but do not receive the money before passing away, the payout forms part of your estate.
If your estate is valued at more than £325,000, inheritance tax will be charged on the insurance payout.
It is possible to get around this by writing your insurance policy in trust. This is where your policy is held within a trust and so classed as being outside of your estate.
While some state benefits are available to help people who fall ill, they are unlikely to stretch very far - at best you may be able to claim around £100 a week. It’s also worth considering critical illness cover if your employer does not offer much to help employees who develop long-term health issues.