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If you're diagnosed with a critical illness or experience a serious injury, it can have a severe impact on your finances as you may need to take time off work for your treatment and recovery.
Critical illness insurance is designed to help with financial burdens. It pays out a lump sum payment when you're diagnosed with one of the specific conditions covered by your policy.
It's slightly different to income protection insurance, which covers a wider range of incidents by replacing a percentage of your regular income, and life insurance, which pays out to your family if you die.
Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms and conditions of a provider before committing to any financial products.
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Find out more about the different types of life insurance.
Critical illness cover is often sold alongside a life insurance policy such as term life insurance. The structure of each type of cover is quite similar. You can also buy standalone critical illness policies.
When taking out critical illness cover, you'll need to work out how much cover you need and how long you want the policy to run for. For example, you might calculate you need £100,000 of cover, to run for a 30-year term.
It's a good idea to sit down with a financial adviser and work out what sort of sums your family would need to live comfortably if you were no longer able to work due to a serious medical condition.
You could arrange cover so:
Critical illness policies pay out once, and the cover then ends. You can select whether you want the critical illness payout to increase over the course of the term, so that it keeps pace with inflation. Or, if your main concern is being able to cover the cost of the mortgage, then you can go for decreasing cover.
Income protection insurance provides ongoing financial support in the form of a regular income if you're unable to work due to illness or injury. This can offer peace of mind knowing that you'll still have a source of income to cover your regular expenses, such as bills, your mortgage or rent.
Critical illness insurance, on the other hand, offers a lump sum payout if you're diagnosed with a serious illness listed in the policy. The immediate payout can help cover medical expenses, mortgage payments, or other financial commitments that may come up due to the illness. Think of it as financial armour against unexpected health issues.
If you want steady financial support to cover your day-to-day expenses and have family members depending on your income, you might lean towards income protection, even though it might pay out less overall. Or, If you're worried about how a particular serious illness might affect your finances and that you might need a larger, immediate payment, critical illness cover could be a better fit.
Ideally, having both types of cover offers comprehensive protection against different scenarios. But if budget constraints make that difficult, consider prioritising based on your individual needs and circumstances.
The exact conditions covered by critical illness policies vary between providers. However, certain illnesses and conditions caused by serious injury are covered as standard by most insurers. These include:
You may have the option to add specific additional diseases to your cover for an extra charge, while some insurers will cover your children too when you take out a policy.
Find out more and get advice on critical illness insurance using the service provided by LifeSearch. Discover more.
Your policy may only offer protection once your illness hits a certain level of severity.
Early stages of some cancers may not be included, for example. And to make a claim for other illnesses, you may need to have permanent symptoms.
Different insurance companies may exclude different things, but critical illness policies typically won't cover:
It's vital that you read policy documents thoroughly so that you understand what is and what isn't covered. Many insurers will also insist on having the illness verified by a UK doctor or specialist.
When you apply for critical illness insurance, you will have to provide details of your medical history for the insurer to quote a cost.
If you're in good health, it should be quick and easy to get an idea of the cost of critical illness cover.
To give you an idea of the potential costs associated with critical illness cover, we've compiled illustrative quotes based on different scenarios. Each quote is tailored to a non-smoker working in an administrative role.
It's important to note that these quotes are estimates intended to provide a rough idea of critical illness cover costs. Actual premiums can vary based on factors such as your health, lifestyle, and the specific terms of the insurance policy.
| Provider | Age | Coverage amount | Monthly premium | Take out a policy |
|---|---|---|---|---|
| Aviva | 30 | £25,000 | £7.00 | Use the service provided by LifeSearch |
| Zurich | 30 | £25,000 | £7.72 | Use the service provided by LifeSearch |
| Aviva | 50 | £ 25,000 | £24.79 | Use the service provided by LifeSearch |
| L&G | 50 | £ 25,000 | £28.88 | Use the service provided by LifeSearch |
| Zurich | 30 | £75,000 | £17.16 | Use the service provided by LifeSearch |
| Aviva | 30 | £75,000 | £18.04 | Use the service provided by LifeSearch |
| Aviva | 50 | £75,000 | £74.12 | Use the service provided by LifeSearch |
Table note: These are illustrative quotes provided by LifeSearch in December 2024. The table is ordered via monthly premium cost, starting with the cheapest option.
Different health conditions are likely to have different levels of impact, so it may not be easy to be precise about how much cover you need for a condition that hasn't happened yet. But it's a good idea to give it some thought. To calculate how much critical illness cover you may need, work through these steps.
You must tell the truth in your application about any pre-existing conditions – if the insurer finds out later on that you weren't entirely honest, it could void your entire policy.
Having a pre-existing condition doesn't mean you will be unable to find critical illness insurance.
However, it does mean that any cover you do find is likely to be more expensive. It also may have more extensive exclusions than for people who don't have a history of medical issues.
Start by working out how much cover you need, using the steps we've outlined.
Then, it's a case of comparing critical illness policies and finding one that offers the best balance of price and quality of cover.
In some cases, you may be bundling critical illness together with life insurance, so you'll need to find a provider that offers good quality cover for both types of insurance.
If you're confident you know what you need, you can approach providers directly or get a quote via a comparison site. However, working out the details of the type and level of cover you need can be complicated, so it can be a good idea to discuss your needs with a financial adviser.
When you make a successful claim on your policy, the money is paid out in a single lump sum.
The length of time taken to make the payment will vary between providers – though processing a claim can take months.
Contact your insurer as soon as you receive a diagnosis, so that it can talk you through the claims process and how long it's likely to take before you receive the money.
Be aware that if your critical illness cover is bundled together with a life insurance policy, if you receive a payout for the critical illness, the amount that could be paid out if you later die within the term will be reduced. Separate critical illness cover and life insurance polices avoid this.
Payments from a critical illness policy are not classed as income, so you won't have to pay any income tax on the money you receive from your insurer.
Your loved ones could face a potential inheritance tax bill, however, if you take out a joint life insurance and critical illness policy. In this case, if you make a claim but do not receive the money before passing away, the payout forms part of your estate.
If your estate is valued at more than £325,000, inheritance tax will be charged on the insurance payout.
It is possible to get around this by writing your insurance policy in trust. This is where your policy is held within a trust and so classed as being outside of your estate.
Choose life insurance, health insurance, income protection and/or critical illness cover via LifeSearch and get a £50 John Lewis gift card.
Get a quotePolicy must be active for 90 days before gift card is issued. T&Cs apply.
While some state benefits are available to help people who fall ill, they are unlikely to stretch very far – at best you may be able to claim around £100 a week.
It's also worth considering critical illness cover if your employer does not offer much financial support for employees who develop long-term health issues.
You'll find details of your company sick pay entitlement in your written statement of employment, which you should receive within two months of starting work.
Many employers offer company sick pay entitlement, which may replace all or most of your income for a period. But this can end after six months, at which point a critical illness cover payout may be helpful.
Agency workers qualify for statutory sick pay (SSP), as do those whose employer doesn't offer a more generous sick pay policy. But this is fairly low and is unlikely to replace your full income. And it only lasts for up to 28 weeks. It's also worth noting that you're not eligible for SSP if you're receiving statutory maternity, paternity, adoption or additional paternity pay.
Taking out critical illness cover can also help cover expenses in your day-to-day life. Rather than eating into your savings, a payout from insurance may help with costs including rent payments, a repayment mortgage and energy bills.
Yes, you can buy critical illness cover as a separate policy, without it being bundled with life insurance.
It's worth checking what the policy covers and make sure it fits your needs. Also, think about your financial situation and decide if just having critical illness cover is enough, or if you might need other types of insurance, like life insurance, to cover everything you need.
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