We may be living longer but we seem to be getting sicker at a younger age. Stress, poor diet, smoking or drinking too much – they all take their toll over the years. There is a way of protecting yourself against the financial consequences, but too many don’t know it even exists.
There’s been a “silver exodus” since the Covid pandemic, with more than 600,000 over-50s leaving the workforce after the pandemic.
While some were happy to take early retirement large numbers were either sick, injured or disabled and unfit to work as a result.
Despite longer life expectancy, people in their 40s and 50s are likely to suffer more years of ill health than older generations, due to conditions such as obesity and diabetes, according to a study by UCL Centre for Longitudinal Studies.
Mid-life illness can play havoc with personal finances and ruin the best laid retirement plans, and state benefits like the Personal Independence Payment are often inadequate and difficult to claim.
However, it is possible to protect yourself by taking out a type of insurance known as critical illness cover.
This pays a tax-free lump sum if you suffer from one of a list of life-threatening illnesses, such as cancer, heart attack or stroke.
We are now five times more likely to suffer a serious illness before 65 than die, and the financial impact can be even greater than dying, said Alan Lakey, a financial advisor at Highclere Financial. “Yet while many are happy to take out life insurance, far fewer people take out critical illness cover.”
Critical illness policies are sold by insurers such as Aviva, L&G, LV, Royal London, Scottish Widows, Vitality and Zurich, typically after customers have taken independent financial advice.
For those who do understand the product, it is possible to buy cover from a specialist comparison site, with LifeSearch the most established.
Claimants are free to use the critical illness payout on whatever they want, say, to pay for treatment, clear their mortgage, replace lost income or take a holiday. The payout should not affect your entitlement to state benefits.
Premiums will depend on your age, state of health and whether you smoke or drink heavily. For example, a 30-year-old non-smoker could get £100,000 of critical illness cover from just £25 a month, rising to £50 from age 40.
At age 50, they could pay £100 a month, but this would be for a policy running to age 75. They could reduce that by choosing a policy running to, say, 65. In every instance, smokers can expect to pay half as much again, because they are much more likely to fall ill.
Many people take out a combined critical illness and life cover policy, which will pay out once, if you either get a serious illness or die within the policy term.
A combined life and critical illness policy for £100,000 over a 20-year term to age 70 would cost a 50-year-old non-smoker around £100 a month.
Lakey suggested taking advice and avoiding the temptation to only buy the cheapest policy you find. “Some cover just three conditions, others up to 100. The best policies may also include extras such as 24/7 GP access, second medical opinion, physiotherapy, mental health counselling and annual health MOTs.”
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Newer policies may include extra benefits such as remote access to GPs, counselling services or partial payments for less serious conditions, such as early-stage cancers, said Justin Harper, protection development director at LifeSearch. “Insurers have a good track record of settling claims, with more than 95 per cent paid.”
Once you have set up a policy your premiums will not increase and the insurer cannot change the terms of your cover. “They will only pay out for illnesses listed on the policy document, so it is important to understand what you are covered for.”
Critical illness cover policies exclude mental health conditions and back problems, Harper said. “If you want that, you could take out another form of insurance cover called income protection, which pays a replacement income if you can’t work. In an ideal world, you would have both.”
