Critical illness cover explained

In this guide, you can find out what critical illness cover is and how it works. We also look at the types of illness it covers and what it doesn’t cover. Plus, we review how much it can cost and whether you need critical illness cover. 

What is critical illness cover? 

Critical illness insurance is a type of insurance policy. It pays out a lump sum to you if you’re diagnosed with an illness that's covered under the policy. Illnesses covered by critical illness cover include: 

• cancer 
• heart attack 
• stroke 
• permanent disability. 

Critical illness insurance is often bought at the same time as life insurance. But it’s different to life insurance in that it pays out whilst you’re still alive. This means you can use the money to help pay the bills as you recover from or adapt to your new condition. Life insurance will help your family financially if you die while covered by the policy. 

Once the lump sum has been paid out from critical illness insurance, the cover will end. Unlike income protection insurance, you won’t receive a regular amount of money while you are unwell. Instead, you can use the lump sum you receive as income if you want to. 

How does critical illness cover work? 

When you take out critical illness insurance, you decide how much cover you want and how long you want the plan to last. 

Once the cover is in place you can make a claim if you become unwell with one of the medical conditions covered by your policy. Your insurer may contact your GP or consultant for details about your claim. 

Depending on how severe the condition is, you may not get the full amount of cover paid out in one go. The payout may be less if the condition is not so advanced. 

For example, if you claim for low-grade prostate cancer, you may receive 25% of your chosen level of cover. It’s likely that you will recover and return to daily life. If you then go on to develop an advanced malignant tumour, you can make another claim for the remaining amount. Once the full 100% is paid out, the policy comes to an end. 

You can use your payout however you wish. People tend to use the money to pay off a mortgage or pay rent. You can also use it to make alterations to your home following an accident or illness. Or to cover medical expenses if you choose to have private treatment. 

The difference between critical illness and terminal illness 

Terminal illness is any type of illness that is likely to lead to your death. Insurance companies tend to define terminal illness as a life expectancy of 12 months or less. You can often make a claim on your life insurance policy before you die if you have a terminal illness. 

A critical illness is a serious condition that can significantly disrupt your life but doesn’t necessarily lead to death. Insurance companies define which critical illnesses you can claim for. They will only pay out when you reach that definition. 

Do I need critical illness cover? 

Critical illness cover provides a valuable financial safety net if you get seriously ill. These are a few questions to ask yourself when deciding if you need cover. 

• Financial dependants - Is your family dependent on your salary to pay the mortgage or rent and other financial commitments? 
• Savings - Do you have the equivalent of six months’ income as savings to fall back on if you get sick? 
• Employer -  What employee benefits does your employer offer? Will they pay your wages as normal while you’re off work or will you be put on to statutory sick pay? 

The cost of critical illness cover 

The price of your cover depends on several factors, including: 

• the amount and type of cover you want 
• the length of the policy 
• your age and occupation 
• your health and lifestyle 
• any pre-existing medical conditions. 

The type of premium you choose can also affect the cost of your plan. Many insurers offer both guaranteed premiums and reviewable ones.  

Guaranteed premiums won’t change during the time you hold the plan unless you make changes to your cover. Reviewable ones will be reviewed every now and again by your insurer. They may change the premium, especially if you’ve made a claim. 

It’s also a good idea to review your amount of cover when your circumstances change. For example, getting married or having children could mean you’ll need extra cover. 

Changes in lifestyle and critical illness cover 

If you’re worried about the cost of critical illness cover, you can make changes to your lifestyle that could potentially lower your premium.  

Some of the lifestyle choices affecting the cost of your cover are smoking, drinking alcohol and being overweight. Quitting smoking and drinking and losing weight can help reduce the cost of cover. 

Critical illness cover - things to consider 

Before you take out any critical illness cover, you should shop around for the best deal. It can be difficult to compare one policy to another as they vary so much. But, specialist advisers can help you understand the differences between policies.  

The main factors to consider are: 

How much cover do you need? 

You can have the cover for just you, or you and your partner and you can usually add children too. You can also add on indexation which means your cover keeps its value in the future. 

How long do you want the cover to last? 

The policy can run for as long as you need it. For example, until you finish paying your mortgage, or when your children finish full-time education. 

Which illnesses are covered? 

Knowing which illnesses the policy covers is important. Only a certain number of very specific illnesses will be covered. So, review the insurance documents carefully to find them. 

What isn’t covered by the policy? 

Check for exclusions, such as pre-existing conditions. Make sure you’re completely honest when answering medical questions. That way there’s no nasty surprises when making a claim. 

Published: 17 July 2024

¹ Source: The Health Foundation Health in 2040 - Insights Report July 2023