What is critical illness insurance?
Sometimes referred to as ‘trauma cover’, critical illness insurance is a type of health insurance that provides the policyholder with a one-off payment if they are unlucky enough to be affected by one of the conditions specified in the policy. The range of conditions covered can usually be adjusted and it is common to find both standard and premium versions of critical illness insurance offered by most decent insurers.
Stepped vs level premiums
The structure of critical illness insurance premium payments is an adjustable option many companies offer, usually in the form of one of the following:
. Stepped premiums
In this case, premiums are assessed and reviewed on specific dates, agreed upon at signing. This type of premium structure usually sees premiums increase annually as the policyholder ages. If applicable, the payout sum will also increase in line with inflation of the cost of living.
. Level premiums
Level premiums are set at the commencement of insurance coverage based on age and other contributing factors. Although they tend to start at higher prices, level premiums are less susceptible to change and drastic increase as the policyholder ages. However, they are not fixed permanently; premiums may rise at the discretion of the insurers.
When considering critical illness insurance and whether to opt for stepped or level premiums, it is advisable to assess your financial situation accurately and consider the long-term affordability of both options. Initial cost savings associated with stepped premiums may seem enticing and may prove suitable for short-term requirements. Level premiums, on the other hand, provide consistent, stable payments that may better suit your circumstances.
- Remember — critical illness insurance is only available to purchase as an external policy and cannot be funded by superannuation.
Who is critical illness insurance for?
Critical illness insurance is suited to any Australian who wishes to protect themselves against the unthinkable. However, it is particularly recommendable when the policyholder:
- Has a family or other financial dependants
- Is liable for mortgage or other debt payments
- Is self-employed or owns a business
- Faces direct financial difficulties without the ability to work for even a few weeks
- Lacks adequate savings for unforeseen expenditures
There is no doubt if you are in a position to afford critical illness insurance, you should do so. The lump sum payment you will receive if the worst happens can only ever be extremely helpful in the most trying of circumstances and will never be something you regret. As with all forms of insurance, the cost of premiums is the price that must be paid to achieve peace of mind. For the ability to put those thoughts aside and focus on other matters. To some people, that is a priceless commodity, whereas others give it scant consideration. Either way, being diagnosed with a critical condition is a life-changing experience nobody wants. To do so with financial worries hanging over your head is even less palatable and should be avoided at all costs. Taking out critical illness insurance represents a very sensible, achievable option.