Serious illnesses generally specified as critical in Insurance Policies are cancer, stroke, heart attack, rheumatoid arthritis and multiple sclerosis. The benefit in taking out this type of policy is that it pays a tax-free lump sum as soon as the policy holder survives any of the critical illness detailed in the policy, for a specified period (which is usually 28 days). The money could be used to fully or partly clear an outstanding mortgage/loan or even replace lost income. And what’s more - this tax-free lump sum does not need to be repaid even if the policy holder makes full recovery from his/her diagnosed illness.

But do remember that it is necessary to make a full and honest disclosure of your current health situation. If it comes to light that at the time of applying for a policy, you were already suffering from an illness specified in the policy and had deliberately chosen not to disclose the truth about your current health condition, then the policy will become void.

You can take out a critical illness cover either on its own merit or link it to a term assurance policy. If the cover is linked, then the tax-free lump sum will be paid either on the diagnosis of critical illness specified in the policy or on death, i.e. whichever occurs first.

There are plenty of providers for this kind of policy on the market and it would be wise to shop around first and see which one suits your needs best. Always remember to refer to the individual insurer to find out details of the illnesses covered, what its definitions are and its underwriting criteria.

Syed Abedin is a mortgage broker and personal credit expert.

Credit Cards UK

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