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 pay out a tax-free lump sum of money on the 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 policy can help maintain your family's standard of living. You can buy critical illness insurance as a standalone policy or you can buy a life and critical illness cover policy, sometimes called death and critical illness cover. While life insurance covers you for death, a critical illness diagnosis can have a similar financial impact even when you survive. 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 - Core Conditions
- Heart attack
- Alzheimer's disease
- Multiple sclerosis
- HIV infection
- Kidney failure
- Liver failure
- Parkinson's disease
Many of the illnesses listed will be covered based on the severity and specific symptoms of the illness. The critical illness insurance may or may not include cover against permanent disabilities as standard so it is worth checking whether this has been included. The critical illness provider will provide a detailed list of conditions. 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 that are typically NOT covered by critical illness insurance
- Non-invasive cancer
- Injuries such as broken bones
- Medical conditions diagnosed before application
- Hypertension (abnormally high blood pressure)
- Pre-existing medical conditions (unless assessed and accepted by the insurer)
With the advances in medical diagnoses and treatment, some illnesses 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 if you are diagnosed with a less serious illness such as an early stage cancer.
Although serious pre-existing medical conditions can make it difficult, speaking to a critical illness insurance expert* could help you to find an insurer that can offer cover as insurers differ in how health is assessed and an expert can navigate you to the most favourable insurer for your particular health circumstances.
Always check the illnesses covered and qualifying conditions before taking out or replacing a critical illness policy.
This is not always easy to do as definitions of illnesses can be full of medical language that isn't immediately clear to the layman. Speaking to a specialist critical illness insurance adviser* will help if you're not sure that you're comparing like-for-like as they have access to tools that produce reports to show you the real differences between policies and the cover they provide against illness or injury.
Types of critical illness cover explained
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 - it will only pay out if the insured person is diagnosed with a critical illness or disability that is covered within the terms of the policy. Think carefully before buying standalone critical illness as it is often more cost-effective to buy critical illness cover combined with life insurance 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). Bear in mind that critical illness cover pays out after a specific survival period from the point that you are diagnosed, usually between 10 and 30 days. If death happens before this time has elapsed, regardless of the diagnosis, you won't be able to claim unless you have included life insurance.
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. The life insurance element will usually include terminal illness benefit too so that an early death claim can be made if the insured person is likely to survive for less than 12 months. Typically there are two ways to combine life insurance with critical illness cover.
Life and accelerated critical illness insurance
This cover is a type of cover that combines life and critical illness insurance and pays out on either death or diagnosis of a listed critical illness, but not both. So, if you suffered a stroke and subsequently died, you would only receive one payout. This is the cheaper option but keep in mind that if you do suffer a critical illness and have to claim against your combined insurance and don't have any separate life insurance, you'll probably struggle to buy more life cover due to your health.
Life and additional critical illness insurance
With life and additional critical illness insurance, if you claim because you are diagnosed with a critical illness and receive a payout, the life insurance will continue and subsequent death would warrant another claim and payout. It does come at extra cost but your life insurance is protected.
Most policies won't indicate the type of combined policy you are buying but you'll be able to find wording within the terms that confirm whether or not your life insurance will continue after you make a critical illness claim. Do check this or ask the insurance company to clarify.
Part of a decreasing term/mortgage protection life insurance policy
Mortgage protection life insurance is the cheapest form of life insurance cover (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. You can choose a different amount of critical illness insurance for your mortgage depending on what you want to spend so that if you do suffer a serious illness, there is some money to keep paying towards your mortgage or to reduce the balance of your mortgage down to a manageable amount.
Up to £100 cashback on critical illness insurance
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Fixed vs Reviewable critical illness policy
Some critical illness policies offer the option to have a fixed premium so that the monthly price that you pay doesn't change for the duration of your insurance. The alternative is a reviewable premium that can reduce or increase over the policy term based on the insurance company's review.
Guaranteed premium critical illness cover
With the fixed or guaranteed premium option, premiums will remain at the same level throughout the policy term.
Reviewable premium critical illness cover
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 will 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 the insurance company LV:
- 1 in 2 people born after 1960 is expected to get cancer in their lifetime.
- Claims for a heart attack are only exceeded by those for cancer so it is the second-largest reason for claims against critical illness insurance policies.
- There are more than 100,000 strokes suffered in the UK every year, that's a stroke at least every 5 minutes.
- Strokes are a major health problem and are the single largest cause of disability for people in the UK
- Many of those suffering a critical illness will not be able to work again
The amount of critical illness cover you choose 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 or reduce it down to a manageable level in the event of being diagnosed with a critical illness. You should consider the financial impact if you were unable to work due to a serious illness and factor this into the level of cover you choose.
How much does critical illness insurance cost?
The price of critical illness insurance varies across different insurance companies but so does the cover that they provide but a higher monthly premium isn't always an indication of a better quality of critical illness cover.
Factors that affect the cost of critical illness insurance
- Smoker status
- Medical history (including the medical history of your immediate biological 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 the amount of 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 in paying out claims?
- Do they offer additional benefits such as children's cover?
^Companies like AIG have moved away from competing on the number of illnesses covered and introduced impact-based definitions in 2020 but they do tell you the equivalent number of illnesses that would be covered if you are comparing against others.
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 AIG, Aviva, LV=, L&G, Canada Life, Guardian 1821, 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 history of claims paid
- Clarity of policy wording
- ABI and ABI+ approved illness definitions
We have provided a handy comparison table below that compares the number of core conditions 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 confirmed 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 the quality of the critical illness cover provided by most life insurance companies. We have focussed on some of the key areas to look at and you should use the following to help you work out which is best for you:
- Number of full payment illnesses covered - if you are diagnosed with one of these then you'll receive the sum of money you insured yourself for and the cover will stop after the claim is paid.
- Number of partial payment illnesses covered - partial payment illnesses are usually less serious illnesses that will not qualify for if you are diagnosed with one of these then you'll receive a percentage of the sum of money you insured yourself for and usually your full payment cover will continue to protect you.
- Number of child-specific illnesses covered - some insurers include a list of serious illnesses commonly observed amongst children, providing a wider range of cover for your child.
- Number of illnesses that meet ABI+ approved definitions - the Association of British Insurers (ABI) sets a minimum standard for the definition that has to be met to claim against the 3 main illnesses, cancer, heart attack and stroke as well as 19 other illnesses. An ABI+ definition improves upon the minimum standard, making it easier to claim.
- Payment limits for children's critical illness cover - each company has a limit to the amount that will be paid for a child's critical illness and some are more generous than others.
- Percentage of claims paid / Year - the percentage of claims that are paid against claims received by each insurer.
|Insurance Company||No. of full payment illnesses covered||No. of partial payment illnesses covered||No. of child-specific illnesses covered||No. of illnesses that meet ABI+ approved definitions*||Payment limits for children's critical illness cover||Percentage of claims paid / Year|
|AIG Key 3||3||0||0||3||Not included||97% in 2022|
|AIG Core||23||25||19||16||25% of cover amount up to £25,000||97% in 2022|
|AIG Enhanced||30||20||52||16||50% of cover amount up to £50,000||97% in 2022|
|Aviva||33||2||0||19||50% of cover amount up to £25,000||93.5% in 2022|
|Aviva Upgraded||47||25||11||19||£25,000 (flat payout rate)||93.5% in 2022|
|Beagle Street||21||5||0||0||25% of cover amount up to £25,000||Not released|
|Guardian 1821||53||22||6||18||Choose from £10,000 up to £100,000||Not released|
|Legal & General||31||2||0||17||50% of cover amount up to £25,000||93.4% in 2022|
|Legal & General Extra||48||28||8||17||50% of cover amount up to £30,000||93.4% in 2022|
|LV= standard||49||38||0||14||50% of cover amount up to £25,000||88.0% in 2022|
|LV= enhanced||49||38||10||14||50% of cover amount up to £35,000||88.0% in 2022|
|Royal London||47||20||0||14||50% of cover amount up to £25,000||93.6% in 2022|
|Royal London enhanced||47||20||13||14||50% of cover amount up to £50,000||93.6% in 2022|
|Scottish Widows||30||10||5||14||50% of cover amount up to £30,000||93.3% in 2022|
|Zurich||40||2||0||16||50% of cover amount up to £25,000||91.0% in 2022|
*The Association of British Insurers (ABI) set a minimum standard of definition for those illnesses that must be covered under a critical illness insurance policy and ABI+ indicates that the definition is better than the minimum standard
How to compare critical illness cover
The type of insurance you may need depends on your personal circumstances and the things you may be worried about personally. The largest number of claims are for cancers, heart attacks and strokes so despite there being a lot of information to digest, having some cover rather than none is a good place to be.
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. Especially as there are other illness insurances that you should consider such as income protection insurance which may be more suited to your needs. 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 convenient time. There is no obligation to take things further however if you decide to take out a policy you will qualify for up to £100 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