What Is Critical Illness Insurance?

Critical illness insurance is a cover that pays you a lump sum when you're diagnosed with one of the illnesses the policy defines as critical. It doesn't pay doctors or hospitals: it hands you money, in one go, for you to put towards whatever your situation needs. That's the key to understanding how it differs from life insurance, health insurance or incapacity insurance, and why the three are sometimes confused.

In this article we explain how it works, what's typically found on the market, how it's similar to and different from the insurance you're probably already familiar with, and what questions to ask before taking it out. No made-up figures: the amounts, the illnesses included and the timeframes are set by each insurer, and the only reliable way to know them is to read them in the terms and conditions.

How it works, step by step

The basic mechanism is similar across almost every product on the market, although the details vary from one insurer to another:

1. You choose a sum insured. You pick an amount that the insurer will pay if the covered diagnosis occurs. That amount, together with your age and your state of health, affects the premium.
2. You answer a health questionnaire. The insurer assesses your risk based on what you declare. That assessment can result in acceptance, acceptance with exclusions, or refusal.
3. The waiting period passes, if there is one. It's common for the cover not to apply from day one. The specific waiting period depends on the policy.
4. The diagnosis is made. If the illness diagnosed matches one of those defined in the policy and its requirements are met, it's reported to the insurer along with whatever medical reports it requests.
5. The insurer pays the sum insured. Once compliance with the conditions has been verified, it pays the agreed amount. It's money you can use as you wish.

What triggers payment is the diagnosis of an included illness, exactly as the policy defines it. It doesn't depend on there being expenses to justify, but it does depend on meeting exactly the criteria set out in writing.

Two common ways to find it

As an advance within life insurance

This is the most common way people already have it without knowing. Among the standard covers on our life insurance is the critical illness capital advance: instead of waiting until death, part of the sum insured under the life policy can be paid out while you're alive when a critical illness is diagnosed.

The practical consequence is important: if it's an advance, what you receive on diagnosis is normally deducted from the capital your beneficiaries would later receive. It helps you in a difficult moment, but it reduces what's left for your family. What percentage is advanced and on what terms is set by each policy.

As independent or supplementary cover

There are also products on the market where critical illness cover is taken out separately, or added to the life cover without reducing it at all. In that case, payment on diagnosis doesn't erode the death benefit. It tends to be more comprehensive and, naturally, this affects the price. Whether this option is available to you, and on what terms, depends on the insurer; we check this case by case.

How it differs from other types of insurance

The most common confusion is thinking that, if you already have life or health insurance, you're covered against a critical illness. It depends on what you mean by covered. This table summarises what each one protects:

Insurance	What triggers it	What it gives you
Critical illness	Diagnosis of an illness defined in the policy	A lump sum you can use freely
Life	Death or permanent disability	A lump sum for the beneficiaries or for you, depending on the cover
Health	The need for medical care	Access to specialists, diagnostic tests and hospitalisation in the private healthcare system
Accidents	An accident	Assistance costs and compensation for death or disability arising from the accident
Long-term care	Recognition of severe or major dependency	A lifetime monthly income or a single lump sum, your choice

Versus life insurance

Life insurance protects your family if you die or suffer a permanent disability. Critical illness cover protects you while you're living through the diagnosis and treatment, when you may not have died and may not have been recognised as disabled, but your finances have already taken a hit. That's why they fit well together, and why the capital advance exists within so many life policies.

Versus health insurance

Health insurance deals with the care side: specialists, tests, hospitalisation, a second medical opinion. It doesn't pay you money for being ill. Critical illness cover does exactly the opposite: it doesn't give you doctors, it gives you liquidity. Having one doesn't replace the other.

Versus incapacity insurance

Insurance linked to incapacity, such as the permanent disability cover included in life insurance, accident insurance or savings insurance, pays out when a lasting loss of capacity is recognised, under the criteria each policy sets. There are also products on the market that pay a daily amount for each day you're unable to work. Critical illness cover is a different thing: it pays out on diagnosis, even if it's not yet known whether there will be any incapacity or how long it will last. If you'd like to understand incapacity better, we have an article on it: What Is Work Incapacity?

Versus long-term care insurance

Our special long-term care insurance pays out when severe or major dependency is recognised, whether it results from an accident or an illness. It protects a later, different stage: when help from another person is needed for daily life. A critical illness may never reach that point and still completely upset a household's finances.

What to check before taking out cover

Since terms vary so much between insurers, it's useful to keep a list of questions and to insist on answers in writing:

• Which illnesses are included and how they're defined. There's no list common to the whole market. Two policies can name the same illness and set different requirements for payment.
• Whether the sum insured is an advance or is additional. This changes what's left for your beneficiaries.
• The waiting period. From when the diagnosis is covered.
• The exclusions. Particularly those relating to pre-existing conditions.
• The age limits. Up to what age you can take out and keep the cover.
• The requirements to claim. What medical documentation is required, and whether there's any deadline or condition after the diagnosis.
• Whether it can be claimed more than once. Or whether the cover ends after the first payment.

Common mistakes

• Assuming you already have it. Many people believe their life insurance, for example the one linked to their mortgage, includes this cover, and that's not always the case. You need to check the specific policy terms.
• Comparing on price alone. A cheaper policy may include fewer illnesses or define them more restrictively.
• Leaving out information in the health questionnaire. It's the fastest way to run into a problem on the day of a claim. Declare accurately and, if in doubt, ask.
• Choosing a sum insured at random. The amount should come from your fixed expenses, your income and your savings, not from a round figure.

An example to make it clear

Imagine a couple in Santa Cruz with a mortgage and two children. She has life insurance with a critical illness capital advance and health insurance. If she receives a covered diagnosis, the health insurance gives her access to private care, and the critical illness cover advances part of the life sum insured to cover household expenses while treatment lasts. What shouldn't be forgotten is that, if it's an advance, the sum left afterwards for her family will be smaller. That's exactly the kind of decision that's best made with the figures in front of you, before you need it.

On the diagnosis, the treatment, or any health decision, your doctor is always the reference point. This article deals only with the financial and insurance side.

How we help you at Retuerto y Asociados

We review your current policies to tell you whether you already have this cover and on what terms, we compare what several insurers offer, and we put in writing the illnesses included, the waiting period and the exclusions before you decide. You'll find all the information on our critical illness insurance page, and if you'd rather we look at your specific case, ask us for a free quote or get in touch via contact.