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Critical Illness Insurance

Money is the last thing you want to worry about in case you get critically ill. This type of coverage can help pay bills and keep a roof over your head while you’re recovering. Critical illness insurance typically pays in a lump sum if you are diagnosed with one of a select few conditions. In this article, we'll explore critical illness policies, including how they work and how to find the right critical illness cover for you and your family.

A lot of emphasis is placed on the importance of having a life insurance policy in place, but very few of us think about the possibility of being unable to work after falling ill, especially while we're in good health. Critical illness policies offer financial protection through tax-free, lump-sum payments that can help you pay for your treatment, large debts like mortgage payments or your living expenses while you are on the road to recovery.

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What Is Critical Illness Insurance?

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Critical illness cover is an insurance policy that gives the policyholder a one-off payment when they are diagnosed with either a consequential illness, or medical condition. Some insurance companies or insurers will cover a serious injury from an accident, if so listed by the relevant critical illness policy. The proceeds can be spent in any way the beneficiary sees fit, including covering medical bills and other health-related costs (like altering the home to accommodate their illness or disability), making ends meet, or paying off debts.

Once a policyholder has made a successful pay out claim, the policy ends, and they will not be able to make another claim. Terms usually last between two and fifty years, depending on the policy.

Different Types of Critical illness insurance

There are usually two types of critical illness insurance to consider; namely, life insurance policies with critical illness cover added or critical illness cover as a standalone product.

Critical illness insurance add-on

Many life insurance providers provide critical illness cover as an optional add-on to a life insurance policy. Life insurance pays a lump sum amount if the policyholder dies during a certain period, providing that the monthly premiums are paid up to date, while the critical illness cover protects the policyholder if they fall critically ill or suffer a permanent disability or life-threatening injuries following an accident. This policy is a little more affordable than obtaining two separate policies and offers more cover and protection to you and your family.

When you apply for life insurance, you can add term cover for critical illness, where the cover amount stays the same through the policy; an increasing term that increases in line with inflation and the cost of living. Decreasing term life insurance sees the cover amount reducing in line with outstanding debt on a repayment mortgage. Decreasing cover is usually relevant when a mortgage lender insists that a mortgage holder adopts a life insurance policy when they purchase a property. You can add critical illness cover to any policy and for any term. 

Critical illness insurance as a standalone product

You may also opt to take out a critical illness plan without life insurance. Critical illness cover pays out a lump sum should you suffer from a serious illness or are involved in a serious accident, providing that your monthly premiums are paid up to date during a set time period.

Common Critical Illnesses Included

Your critical illness cover will pay out if you are diagnosed with the specific illnesses covered by your policy. Your policy documents will have a list detailing all the critical conditions you will be covered for, and it's important to note that some can be quite limited.

Illnesses covered by Critical illness insurance usually include:

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Your critical illness cover policy may also cover permanent symptoms or disabilities due to critical illnesses or accidents.It may also offer a smaller lump sum payment or children's cover, which will pay out an amount if your child is diagnosed with one of these conditions. Your insurer may also allow you to add other illnesses you would like to be covered for to be added to your policy at an extra cost.

How Does Critical Illness Cover Work?

Insurance is structured in a similar way to a life insurance policy and is often sold as an add-on. With critical illness cover, it's hard to know how much cover you need and how long you would like the policy to run for unless you have a clear indication of your family medical history

Many decide to buy critical illness insurance because they are concerned about their ability to cover their mortgage if they are no longer able to work or would like the option of private medical treatment should they fall critically ill. The money paid by your insurer can be used in any way you'd like, including covering your medical expenses or household bills. Your critical illness cover only pays out once and then comes to an end.

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children's critical serious illness

Critical Illness Cover and Terminal Illness

It's important to make a distinction between the two options. A terminal illness is any condition where the sufferer has a life expectancy of 12 months or less. If you would like to be covered for this, you should consider life insurance. Critical illness is payable as either an optional add-on to life insurance or as a once-off payout for a specific illness within a specified stage of progression. If you add critical illness cover to your policy and need to claim, there will be no effect on your life insurance policy or life insurance payout. Terminal illness cover is included with your life insurance or decreasing life insurance policy, at no extra cost. Payouts are made for any illness that does not have a known cure or cannot be cured through treatment. When paid out, the life insurance policy is brought to an end as well. 

Joint Critical Illness Cover

Like life insurance, many insurers will allow you to obtain joint cover that covers two "lives" under the same policy. You may also add children's critical illness cover to your existing policy.

Critical Illness Cover Exclusions

Like with any other insurance policy, there may be exclusions. It's important to read your policy documents carefully before making a decision. Your insurance company may not cover all types of cancer or may offer partial payment of the lump sum insured for if you are diagnosed with specific conditions.

Covid-19 is usually excluded from critical illness cover because the majority of sufferers make a full recovery or are not fully incapacitated as a result of the illness. If, however, you develop a life-threatening side effect or are admitted to an intensive care unit as a result of Covid-19, you may be able to make a claim.

Very few insurers will cover mental health conditions under critical illness insurance, including depression, anorexia or PTSD.

Some common exclusions your critical illness policy may stipulate include:

  • hypertension
  • broken bones
  • non-invasive cancer
  • anxiety

Your critical illness policy may also state how serious the condition must be in order to make a claim, e.g. any stage above Stage II for cancer.

Critical Illness Cover When You Have a Pre-existing Medical Condition

You may find that you cannot easily obtain a critical illness policy if you have a pre-existing condition or if your family's medical history includes serious illnesses like multiple sclerosis. This is because you are viewed as being slightly higher risk.

Antecedent conditions that may affect your risk profile includes:

  • Obesity
  • Diabetes
  • Anxiety and/or depression
  • High blood pressure
  • Asthma
  • Cancer
  • High cholesterol
  • Heart attack
  • Kidney disease
  • Epilepsy
  • Cerebral palsy

You may be able to obtain critical illness cover with added exclusions to circumvent this, i.e. you'll be able to claim for any illness or injury that isn't related to your pre-existing condition or family medical history. Or you may find an insurer that will offer critical illness cover that includes your pre-existing condition but only if you are willing to pay monthly premiums that are higher than average.

Insurers differ dramatically, so don't give up hope! You can still find good critical illness cover if you are seen as higher risk; you may just need to shop around a little more. It's important to be completely honest with your insurer and to disclose these conditions when you apply for critical illness cover. While no one likes sharing personal details with their insurer, failure to disclose a pre-existing condition may void your policy when you need it most.

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Who Needs Critical Illness Insurance Cover?

make a claim for critical illness policies

Virtually everyone can benefit from critical illness cover, especially if you have dependents or a spouse or partner that rely on you for financial support. Bear in mind that any serious diagnosis, accident or heart attack can suddenly force you to stop working, leading to significant financial worry and stress for you and your loved ones.

You should consider purchasing critical illness cover if you or your family depend on your wages/salary, if you have limited savings to draw from should you fall ill, or if you are self-employed or do not have access to employee benefits to cover your income if you need to remain absent from work for a prolonged period.

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What does Critical Illness Cover Cost?

Figures goes up dramatically once the insured person turns 50, with an average monthly premium of £108.92 for non-smokers and £184.43 for smokers (with the same term length and coverage amount as above).

The cost can vary dramatically based on a number of factors, including the amount of cover you acquire, your age, your lifestyle factors, your medical history and your occupation. Your insurer will be able to provide a comprehensive quote based on these details.

According to industry averages, the monthly premium for a 20-year old who combines life insurance with critical illness cover is around £14.75 for non-smokers and £16.49 based on £100,000 of level term insurance over 20 years, where the monthly premium is  fixed for 20 years. (This also assumes that the policyholder is in good health with no adverse occupational or lifestyle risks at play).
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When Does Critical Illness Insurance Pay Out?

You can put in a critical illness insurance claim on your policy when you are diagnosed with one of the conditions stipulated. You can contact your insurer immediately so that they can start the process. Payment times vary between insurers, but it may take up to eight weeks.

amount of cover pay out
take out critical illness life policy tax

Critical Illness Payouts and Taxes

Payments from a critical illness contract are not subject to income tax. However, if your policy is linked to life insurance, there may be tax implications. Let's say you make a claim and do not receive the payout before you pass away. The payout will form part of your estate. If your estate is valued over the threshold of £325,000, inheritance tax will apply.

Inheritance tax is quite hefty at 40%. There are ways and means of working around this, usually by writing your payout into a trust. Speak to your insurer about the options you have at your disposal to make sure that your beneficiaries are cared for after you're gone.

How Much Cover Do You Need?

The amount of cover you need depends on the level of financial support you require. Most people opt to put aside a few years' worth of their salary as well as some funds over and above that amount to cover medical costs. 

policy ends tax free pay out

Alternatives To Critical Illness Cover

buy critical illness with multiple sclerosis
Critical illness insurance may not be right for you, so it's important to consider all of the alternatives, including life insurance or an income protection insurance policy.

Let's look at some of your options:

Income Protection Insurance

You can add an income protection benefit to your life insurance policy. If you become incapacitated due to illness or injury, the benefit will pay you a regular monthly amount until you are able to return to work or until the plan ends or in the event of your death or retirement.

Sick Pay

If you are a UK resident and become too ill to work, you can receive a Statutory Sick Pay benefit (SSP) for up to 28 weeks. This benefit isn't available to self-employed workers, and at £96.35 per week, it may not be sufficient for your needs.

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Life Insurance

If you are primarily concerned about terminal illness, life insurance is your best option. Critical illness cover doesn't include terminal illness cover, but life insurance usually does, provided your policy is set for a term of at least two years.


None of us can predict if or when we'll fall victim to a weighty illness or unfortunate accident. Critical illness cover can cover health-related costs or household bills when you become too ill to work. Speak to your insurer or financial advisor about the possibility of adding critical illness cover to your existing policy or acquiring critical illness cover as a standalone product.

diagnosed with a critical policy conditions

Critical Illness Insurance FAQs

What does critical illness insurance cover?

The number of illnesses covered by a critical illness policy can vary from insurer to insurer. Some cover as many as fifty conditions; others cover fewer than ten. Most insurers will cover conditions like heart attacks, strokes, specific types of cancer, Parkinson's and Alzheimer's disease etc. You may also add specific conditions that you would like to be covered at an additional cost.

What is critical illness?

Critical illness refers to so-called dread diseases or serious injuries that are long-term and serious in nature and may prevent the sufferer from working for an extended period of time. It does not include terminal disease.

Can you get life insurance with HIV?

Yes, you can obtain life insurance if you have been diagnosed with HIV. Individuals with HIV now live just as long as most people without the condition. If you are applying for coverage through your employer or union, you won't necessarily have to disclose your HIV status, but you will need to disclose your status if you are applying as a private individual.

Can I get critical illness cover after the diagnosis?

You can apply for critical illness insurance at any time, regardless of your diagnosis. However, critical illness insurance policies are underwritten, and you will be asked to disclose your current and past medical conditions. This may affect your premium or acceptance by the insurer.

Will my children be covered if I choose Critical Illness Cover?

Your children can be added to your critical illness cover policy, usually at no additional cost. Your children will be covered for the same illnesses and conditions as you. You may also add additional child-specific illnesses to the cover if you prefer.

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