Why cover?
  • affects 1 in 4 women / 1 in 5 men before retirement
  • 94.1% of the critical illness claims are paid
  • protect yourself and your family if you get seriously ill
Why us?
  • get the cover that will pay when you need it
  • save up to 35%, cover from £5 a month
  • free, fast and without obligation quotes
Insurers: Aviva, Legal & General, Liverpool Victoria, Scottish Widows, Vitality, Zurich

Critical Illness Insurance and State Benefits

Here’s the good news, if you are employed, you may be enjoying a more comprehensive insurance coverage. For instance, you may have life insurance, critical illness insurance, health insurance, workers’ compensation insurance and add to these the allowances from the government.

There may be some overlap in the coverage and you may claim from multiple sources. For instance, if you get injured and critically ill due to a workplace accident, you can expect to claim from your critical insurance, possibly your disability insurance and the allowances from the government, which may include:

  • Incapacity Benefit.

    This pays out only for incapacity the occurred before October 27, 2008. After that, the new benefit to be applied for will be the Employment and Support Allowance.

  • Statutory Sick Pay.

    This is for people who cannot work due to sickness or disability. The weekly allowance of £85.85 is usually paid out for the first 28 weeks of sickness if you have been previously working for an employer. This is taxable, where the allowances are treated as earnings.

  • Employment and Support Allowance.

    This is for people who cannot work but earn less than £107 weekly, or are self-employed. ESA is for those not eligible for Statutory Sick Pay.

  • Disability Living Allowance.

    This is for people who claim before they reach 65 years old. This is not based on whether you are working or not and do not affect income-related benefits. For a person to be eligible, you must have mobility problems or personal care needs (i.e. help with bathing, eating, going to the toilet or the need for constant supervision). These needs are due to a physical or mental disability for at least three months and are likely to have these for the next six months.

    Payment for DLA is based on the following weekly rates (as per April 9, 2012):
    Care Component: £77.45, £51.85 or £20.55, depending on eligibility.
    Mobility Component: £54.05 or £20.55, depending on eligibility.

  • Attendance Allowance.

    This is for people who have care needs, are 65 years old or above and are not permanently living in a hospital or locally funded accommodation.

    Payment for AA is based on the following weekly rates (as per December 31, 2012): £77.45 or £51.85, depending on eligibility.

  • Carer’s Allowance (if the carer is a member of the family or household).

    This is currently set at £58.45 a week. This is provided to carers who are 16 years old or over and spend at least 35 hours a week providing care for the disabled person. The recipient of the Carer’s Allowance does not have to be related to or living with the disabled person.

  • Working Tax Credit.

    If you are classified as disabled but work at least 16 hours, Working Tax Credit can be applied for, depending on your income. This is paid on top of other available benefits like Disability Living Allowance.

There are also other benefits provided for those who are incapacitated due to industrial diseases or accidents, as well as injuries incurred while serving in the Armed Forces.

Will state benefits affect the critical illness claims payment?

As far as the critical illness insurance is concerned, any overlap with other coverages or benefits may be irrelevant.

The principle with insurance is that one could not be compensated twice, but this does not apply for cases such as a death or a critical illness. Thus, benefits from other sources (such as state benefit programs) will not affect your critical illness insurance. As long as you meet the definition of your serious illness, as stated in the policy, then the insurance company should be expected to pay the claim.

Will critical illness policy claims payment affect state benefits?

Now, let us talk about the other way around – whether State benefits will be affected if you already receive a payment from your critical illness insurance. The answer is, no. Most of the mandated benefits are not based on the claimant’s income or means, but on specific eligibility standards regarding health. Thus, the government benefits will not check whether you have received a large lump sum for the same illness.

The happy news about this is that you have a more comprehensive coverage. In the United States, some Social Security benefits are based on the recipient’s current income. If the income goes up to a certain level, the state benefits can either be lowered or even stopped.

In the United Kingdom, quite a number of the state-sponsored benefits are not means tested and will pay regardless of one’s income and means.

Critical Illness Insurance vs. State Benefits: Pros and Cons

  Critical Illness Insurance State Benefits
Pros
  • Your claim is paid out as a lump sum, allowing you to pay for substantial expenses such as medical bills or your mortgage.
  • The proceeds of the claim are tax-free.
  • This is received over and above your state benefits.
  • You can immediately receive your benefits as long as you are eligible, regardless of whether you have been paying for only a few months when the claim was made.
  • This provides a number of benefits and tax credits for various situations so you can avail of benefits depending on your particular circumstances.
  • Even if you are not eligible for any benefits, you may still be eligible for national insurance credits. This may also be applied for if your spouse has to leave his or her job to become a carer.
  • Aside from monetary benefits, the state can also provide lower costs for public transport and parking concessions, as well as support from the local council regarding your care.
  • Eligible claimants may receive more than one state benefit.
  • Some benefits don’t require you to make contributions.
Cons
  • You need to meet the definition of the serious illness for it to be payable.
  • This means you need to set aside a portion of your budget for the premiums.
  • Some benefits may be taxable.
  • Some benefits are contributory and require that you have made contributions for a minimum number of months.
  • Since a person can receive more than one benefit, each benefit may affect the others as to the amount one is eligible. For example, the Working Tax Credit may affect one’s Housing Benefit and Council Tax Benefit.
  • Benefits are usually paid on a weekly or monthly basis.

The Verdict

Actually, comparing these two is like comparing apples and oranges. The one actually complements and enriches the other.

Your State Benefits provide a basic level of financial protection and aid in the event that you become critically ill. However, a critical illness insurance policy enables you to enjoy a higher level of benefits, allowing you to live more comfortably and to provide for more of your needs.

Last updated on: 18.1.2013

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