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What is critical illness insurance?

Critical illness insurance can offer a degree of financial security, to cover you in the event of becoming seriously ill.Doctor's stethoscope

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What is a critical illness?

A “critical illness” is a life-threatening condition, and is usually defined in an insurers policy documents.

How does it work?

Critical illness cover pays a tax-free lump sum if you're diagnosed with a critical illness during the policy term.

Provided you keep paying your premiums, you should be covered throughout the term. Once the policy term ends, all protection stops.

When you take out a policy you can decide how long it will last e.g. until your children have grown up, or until the mortgage is paid off. You can even set it to run for life.

You can also usually choose the payout amount, with higher premiums payable for higher amounts.

Critical illness cover is often available as an add-on with a life insurance policy. In these instances, you can often only claim once.

For example, if you get a cash payout after being diagnosed with cancer, the policy is effectively finished. There is usually no life insurance payout if you die at a later date.

Who needs it?

Stick figures with questions

Different people will need critical illness cover for a variety of reasons.

If you’re single, you might want a policy to ensure your mortgage is paid, and some form of cover is often a requirement of the mortgage application.

If you have children, you may want to ensure your family is provided for if you can’t work due to ill health.

Recovering from a critical illness can also mean extra costs for you and your family e.g. making changes to your home or car. Your payout could be used to cover this.

Should I get critical illness insurance?

Most people could benefit from a critical illness policy, but the impact of the premium and the benefit of the payout will vary from person to person.

It's a matter of weighing up the monthly cost against the benefits of a payout. If you and your family depend heavily on your salary, it could be exactly the kind of protection you need.

If you have no financial commitments or dependants, critical illness insurance may not be for you.

How much cover do I need?

Traditionally, critical illness plans pay out the full amount regardless of how serious your illness actually is.

Some offer severity-based cover, where the payout depends on how bad your illness is.

When deciding on how much cover you need, think about what you would lose if you were unable to work due to illness.

Also, think about what financial commitments you would still have, such as children or a mortgage.

Try using our life insurance calculator, which can help you figure out how much cover you may need.

Which illnesses are covered?

Couple in hospital

Illnesses covered will vary between insurers, so it’s important to check the details of a policy before you buy.

Policies commonly cover illnesses such as cancer, heart attacks and strokes, and may include optional add-on illnesses.

Other conditions that could be classed as critical illness include:

  • Major organ transplant
  • Parkinson's disease
  • Deafness
  • Traumatic head injury
  • Bacterial meningitis

A critical illness and terminal illness are different things – a standard life insurance policy should cover any illness where you are expected to die within 12 months of diagnosis.

Your medical history

You'll be required to give some details about your medical history in order to get a critical illness insurance quote.

This is so that an insurer can determine how much of a risk you are, and calculate an accurate price.

It's important to be honest here – your insurer could void any future claims if they find out that the information on your application is false.

Most policies also carry an initial exclusion period, during which you’ll be unable to claim. A typical exclusion period is three months.

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