What is critical illness insurance and how does it work?
Critical illness insurance is a policy that will pay out a lump sum if you are diagnosed with one of the critical illnesses specified in the policy document. Unlike standard life insurance a critical illness policy will payout a tax-free lump on diagnosis of an illness rather than in the event of death. If you are diagnosed with a critical illness you may not be able to continue working so the proceeds from this type of policy can help maintain your family's standard of living. You can buy critical illness insurance as a standalone policy or as a policy that combines life insurance with critical illness cover, sometimes called death and critical illness cover. I cover this in more detail later.
What illnesses and conditions does critical illness insurance cover?
All critical illness policies cover heart attack, stroke and most types of cancer (although there are exceptions). Other illnesses covered vary between critical illness insurance providers but may include some or all of the following:
Critical Illnesses typically covered by critical illness insurance (Often referred to as 'Core Conditions')
- Heart attack
- Alzheimer's disease
- HIV infection
- Kidney failure
- Liver failure
- Parkinson's disease
Many of the illnesses covered will depend on the severity and medical prognosis. A detailed list of conditions will be provided by the critical illness provider. We would recommend that you check out our comparison table below where we compare the number of illnesses covered by each of the top insurers
Illnesses typically NOT covered by critical illness insurance
- Non-invasive cancer
- Injuries such as broken bones
- Pre-existing conditions prior to application
- Hypertension (abnormally high blood pressure)
Essentially, if the diagnosed condition will drastically shorten life expectancy then cover is likely to be provided. With the advances in medical diagnoses and treatment, some illness may not be covered that were once considered critical, but insurers are always looking at ways to add value and so often they will include additional benefits such as Children's Critical Illness cover or perhaps partial payments for less serious diagnosis. Always check the illnesses covered and qualifying conditions prior to taking out or replacing a critical illness policy.
What types of critical illness cover are there?
Standalone critical illness insurance
This is a policy that pays out a lump sum only if a critical illness is diagnosed within the term of the policy. This is the cheapest form of critical illness insurance but does not provide life cover, only critical illness cover. Think carefully before buying standalone critical illness as it is often more cost-effective to buy combined life insurance and critical illness cover as the cost of the additional life insurance is often negligible and so becomes an attractive proposition (and gives you extra peace of mind should the worst happen)
Combined life insurance and critical illness cover
This is a policy that pays out a lump sum if you die or are diagnosed with a critical illness within the term of the policy. Typically there is only one potential payout with this type of policy, if you claim for a critical illness then the life insurance cover will cease.
Part of a (decreasing term) mortgage protection life insurance policy
Mortgage protection life insurance is the cheapest form of life insurance (because the sum assured decreases over time) and is designed to pay off your mortgage in the event of death within the term of the policy. However, if you were diagnosed with a critical illness and unable to work, your monthly mortgage payments would still need to be paid. Adding critical illness cover to your mortgage protection insurance would pay off your outstanding mortgage if you were diagnosed with a critical illness thus protecting your family's financial future.
Fixed vs Reviewable critical illness policy
Some critical illness policies offer the option to have a fixed premium during the policy term or a reviewable premium with the prospect of premiums reducing (or increasing) during the policy term.
With the fixed premium option (sometimes referred to as 'guaranteed') premiums will remain at the same level throughout the policy term.
With the reviewable premium option your policy will be reviewed after a period of time, typically every 5 years, and premiums may either go up or down based on a variety of factors such as the company's claims history, the impact of medical advances, economic factors such as a rise in interest rates and also potential future claims. Your specific health circumstances with not be considered.
Who should get critical illness cover and is it worth it?
If you are a partner or have a dependent family then life insurance is essential to protect your family's financial future. To provide greater protection for their future it would be prudent to include critical illness insurance as part of the same life insurance policy or as a separate contract.
According to Friends Life
- 1 in 3 people will develop some form of cancer in their lifetime
- 50,000 men and 32,000 women suffer a heart attack in the UK every year
- It is estimated that 1.3 million people living in the UK have survived a stroke
- Around 7 out of 10 sufferers survive a stroke
- Many of those suffering a critical illness will not be able to work again
The amount of critical illness cover will be dependent on your personal circumstances and your available budget. As a minimum, the level of cover should be enough to pay off your outstanding mortgage in the event of being diagnosed with a critical illness.
How much does critical illness insurance cost?
The cost of critical illness cover will depend on the following:
- Smoker status
- Medical history (including the medical history of your close family)
- Sum assured (the amount of cover you choose)
- Term (the period of time that you take the cover for)
Each application for critical illness cover is assessed individually and premiums and cover provided could vary widely between people of the same age, depending on their medical history and lifestyle.
However, as a rough guide £100,000 of life insurance with critical illness cover over 20 years for a 30 year old non-smoker would be around £25 per month. The premiums would rise to around £45 pm for a 40 year old non-smoker and just over £100 pm for a 50 year old non-smoker.
What to look for when considering critical illness cover and how to get the best life insurance for you
If you are considering critical insurance cover then you need to have a clear idea of the following:
- How much cover do you need?
- How long do you need the cover for?
- Do you want to combine critical illness cover and life cover in one policy?
- Do you want the premiums to be guaranteed or reviewable?
- Any medical conditions that you currently have or have had in the past
Once you have a clear idea of what you are looking for in a critical illness policy then you should decide the best critical illness cover provider for you by considering the following:
- Number and type of illnesses covered
- If diagnosed with a critical illness at what stage will payment be paid?
- How soon after diagnosis do you have to make a claim?
- Will they provide cover and the term you require?
- Are the premiums within your budget?
- Are there any exclusions within the policy?
- What is the provider's track record on paying out claims?
- Do they offer additional benefits such as Children's cover
Best Companies for Critical Illness Cover Payouts
There are dozens of critical illness insurance providers, including policies provided by well known and well-established insurers such as Aviva, LV=, L&G, Canada Life, Royal London and Zurich, but it is very difficult to make a judgement on which is the best critical illness provider overall due to the number of variable factors to be considered. However, you should consider the following areas (in addition to those above) when choosing a critical insurance provider.
- The reputation of the provider, including the claims history
- Clarity of policy wording
- ABI approved illness definitions
We have provided a handy comparison table below that compares the number of core illnesses covered by each insurer, as well as additional illnesses covered (where a smaller portion of the benefit is paid due to the less serious nature of the condition). We have also provided confirmation of the most recent claims statistics which are available for each of the companies.
According to the Association of British Insurers 98.3% of claims were paid in 2019, an increase on the 97.6% of claims that were paid out in 2018 and 97.8% of claims were paid in 2017.
Critical Illness comparison table
Below we compare each of the top insurers and compare each based on the core illnesses covered (where the full critical illness benefit is paid), as well as the additional conditions covered (where a smaller portion of the benefit is paid) and also their claims history. While a comparison table is helpful, we would still recommend that you speak to an independent expert before you buy, as there are additional benefits and caveats that are not covered by the table and an alternative insurer may be best based on your own personal circumstances (such as your medical history, lifestyle or pastimes)
|Total Conditions where the full benefit is paid||Additional conditions where a portion of the benefit is paid||Children's Critical illness cover||Claims Paid|
|AEGON||39||12||50% or £25k whichever is lower||94.00%|
|AIG||45||55||50% or £35k whichever is lower||96.00%|
|AVIVA||37||2||50% or £25k whichever is lower||92.60%|
|BEAGLE STREET||22||5||25% or £25k whichever is lower||Not Published|
|L&G||37||2||50% or £25k whichever is lower||91.90%|
|LV||48||19||50% or £25k whichever is lower||87.40%|
|OLD MUTUAL||50||28||50% or £25k whichever is lower||Not Published|
|ROYAL LONDON||47||20||50% or £50k whichever is lower||92.60%|
|SCOTTISH WIDOWS||30||10||50% or £30k whichever is lower||93.00%|
|ZURICH||40||2||50% or £25k whichever is lower||90.00%|
How to compare critical illness cover
When researching any insurance product you should engage the services of an expert in the field who can research the market on your behalf and find the best critical illness insurance policy as well as the best value policy for your needs.
LifeSearch* is one of the UK's largest independent critical illness insurance specialists and I have personally vetted their service. They will save you time and money in your search for the best cover available to meet your needs. As we explained earlier, there are lots of things to consider when it comes to critical illness cover and so it would be wise to put some time aside to speak to an expert who can advise you as to which policy is best for you. The service is free and only takes a few minutes, simply click on the link* and complete the short form to receive a call back at a time that is convenient for you. There is no obligation to take things further however if you decide to take out a policy you will qualify for £50 cashback.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article - LifeSearch