Do I need it?

Do I need it?. Also known as dread disease cover, this insurance pays benefits on the diagnosis of certain specified critical illnesses. The range of diseases covered has increased to more than 30 over the years, though contracts differ from one company to another.

However, most policies will pay out after heart disease, strokes, renal failure, cancer, paralysis, major organ transplants and coronary artery bypass surgery. They will also cough up if a policyholder becomes permanently totally disabled as a result of injury or illness.

Typically, the benefit is paid as a one-off lump sum and is tax free. The maximum payable varies between providers but usually ranges between £100,000 and £250,000. Payment is generally made within 28 days of a serious illness being diagnosed though in the event of permanent disability it will take longer - usually six months to a year.

Most providers allow people to take cover between the ages of 17 and 70. It can be for a specified number of years or for life. If you have had a serious illness in the past you will probably have problems obtaining cover though some insurers may offer you a policy that excludes cover for the ailment you previously suffered.

How you use the benefits is entirely up to you. They may be used to pay off a mortgage or clear outstanding debts. They can also help to pay for childcare or home help. Crucially, benefits from a critical illness policy give you time to come to terms with your condition and decide what changes you want or need to make to your life.

But this sort of cover is no good if you die. Benefits are payable only to survivors so the shorter the survival time required before the policy pays out, the better. Some insurance companies will pay as long as you survive a critical illness for a minimum 15 days. However, policies that combine critical illness and life cover may be bought.

A policy can provide a welcome financial boost at a time of great emotional stress and financial hardship and there are few people who would not benefit from taking out such cover.

Critical illness insurance is different to permanent health insurance, which pays a regular income in the event of long-term sickness or injury.

There are a number of instances where payments under one plan would not be allowed under the other. For example, if you suffer from severe back pain you will not be covered under a critical illness policy, but probably will qualify for payment under the terms of a PHI plan. In contrast, a minor stroke would probably qualify for a critical illness payment but would not necessarily be eligible under an income protection scheme. ( dailymail.co.uk )