How much does critical illness insurance cost?

20 min Read Published: 13 Jan 2021

How much does Critical Illness Insurance Cost?When I am asked how much critical illness insurance costs, my usual answer is 'More than life insurance', but there's a bit more to it. You're more likely to claim against a critical illness insurance policy than a life insurance policy and this is simply because we're living longer, however, more and more people are suffering cancer, heart attack and strokes every year. Take the cancer statistic itself - it went from 1 in 3 people will be diagnosed with cancer during their lifetime to 1 in 2. That's a huge shift! On the other hand, even though life expectancy increases have slowed down in the last decade, they're still increasing. We're living longer but we're suffering more illnesses of a critical nature during our lifetimes.

Critical illness insurance prices vary considerably but so does the product itself. Unlike life insurance where death is a largely undisputed event for claim purposes, critical illness insurance is complex and policies can list up to 150 illnesses. You also you need to meet specific definitions in order for a claim to be paid. So, in this article I will answer the following:

What is critical illness insurance?

Critical illness insurance gives you a financial payout to help ease the financial impact of suffering a serious illness. It pays out money if you are diagnosed with one of the illnesses that are covered by your policy. Policies list the illnesses that they protect along with definitions that must be met in order to make a claim.

Importantly, critical illness insurance is not the same as life or terminal illness insurance. Both life and terminal illness insurance will pay out for death or imminent death within 12 months, respectively. By contrast, critical illness insurance pays out on survival of an illness. The most common claims against critical illness insurance are for cancer, heart attack and stroke. Almost 80% of claims are for these 3 illnesses.

For anyone who is diagnosed with an illness that is serious and may even be life-changing, it is some comfort to know that the bills will still be paid or the mortgage can be paid off or reduced in order to make life more manageable.

Emma's story which she shared on a recent Money to the Masses Podcast, showed us how a payout makes a real and tangible difference and in ways that you might not have even considered. It can help pay for the little things like finding someone to walk your dog or the cost of taxis to and from hospitals as well as those larger concerns like keeping up with mortgage or rent payments. Emma also describes how she put away some of the money that she claimed in case her cancer returns. 

The different types of Critical Illness insurance

Similarly to life insurance, a critical illness insurance can be claimed in the form of a lump sum or an income. Here are the different types of critical illness cover and how they work:

Level Term Assurance - you choose an amount of money and the number of years that you want to be insured for. If you are diagnosed with a serious illness that is listed on your policy during those years, the policy will pay out the lump sum of money that you are insured for. You can 'index-link' the amount of money you are insured for so that the premiums and the amount of cover increase each year in line with inflation.

Decreasing/Mortgage Term Assurance - you select the amount of money and the number of years that you want to be insured for.  The amount of insurance reduces over the years in the same way that a repayment mortgage reduces. Some people choose an amount that matches the value of their repayment mortgage and others choose a portion of the mortgage to protect. Deciding how much of your mortgage to protect in case you are diagnosed with a serious illness often centres around how much you can afford and the potential impact that ill health may have on your income.

Family Income Benefit - you choose an annual sum of income you would want to receive over a number of years. If you are diagnosed with a serious illness and need to claim then the income starts paying out and continues until the end of the policy. This is a popular option for families who want to ensure that the bills and other living costs continue to be paid for. The number of years can be matched to the remainder of your working life. Alternatively, you might choose for the insurance to run until you no longer have dependents.

If your situation doesn't immediately fit with one type of policy, you may need to speak to a specialist critical illness insurance adviser*. They will help you to decipher which policy is best and may even suggest that you arrange a combination of policy types to get your ideal solution.

Age & term limitations for Critical Illness insurance

  • You can start a critical illness plan as young as 16 years old and right up to the age of 75.
  • You can run your critical illness plan to finish at the age of 85.
  • Most insurance companies cap the number of years that you can take a policy over to around 40 years.
  • These ranges will vary across insurance companies

How much critical illness insurance do you need?

This is often an area where people struggle and that is because there is no set formula for how much critical illness insurance you should take. You need to consider the difference that the money would make and how long you feel you need the financial security for. Like almost everything else in life, you have to weigh up the cost with the benefits too. Imagining the impact of a serious illness is tough but the initial period after a diagnosis might mean that you're not able to work. If you have a partner, you should consider whether they would be able to continue to work if you required care. Additionally, which household costs would continue in this event and which new costs might arise?

Critical illness insurance can help to pay towards:

  • Reducing or paying off your debts/mortgage, taken as a lump sum.
  • The general household expenses for a year or two to give you some breathing space for treatment and recovery taken as a lump sum.
  • Keeping your household running each month.
  • Paying towards private healthcare

Critical illness case study

  • Jane, aged 26 earns £1,500 net per month
  • Chris, aged 26 earns £1,300 net per month
  • Jane and Chris plan to retire by the age of 65
  • Their child, Aaron is 2 years old
  • Their repayment mortgage has £140,000 outstanding and 33 years until it is repaid
  • The total cost of running their household is £1,800 including their mortgage payment and the cost of childcare for Aaron
  • They have no other debts
  • They have £15,000 in savings which is earmarked for their upcoming wedding

Example case study for a couple wishing to buy Critical Illness insurance

DESIRED OUTCOME 1 SOLUTION 1

Jane & Chris want to know that if either of them became seriously ill, they could both stop work for at least 12 months without having to use their savings or change their household outgoings.

 

Total sum needed for them to stop working = £1,800 x 12 = £21,600

The number of years they need this for is until retirement = 65 - 26 = 39 years until they are both retired

Jane & Chris therefore require a Level Term Assurance for £21,600 over 39 years either as two single policies or one joint policy.

 

DESIRED OUTCOME 2 SOLUTION 2
 

Jane & Chris want to know that they can pay off the mortgage as this will mean that they can live on one income.

 

 A Decreasing/Mortgage Term Assurance for £140,000 over 33 years as a joint policy.

What affects the cost of critical illness insurance?

The cost of critical illness is determined by the following factors:

  • Sum Assured - this is the amount that the policy will pay if you claim - you can choose an income or a lump sum of money.
  • Term - this is the period of time that you want to be insured for in years.
  • Type of policy - one that pays a level or reducing lump sum or an income.
  • Age - the older you are when you start a policy, the more it will cost you.
  • Smoking - smokers pay more than non-smokers.
  • Health - your health as well as any family history of health problems can affect the price and terms of your policy.
  • Occupation - the risks associated with what you do for a living and your working environment may affect the disability options.
  • Pastimes - dangerous pursuits like bungee jumping, motor car racing and such like may be excluded from disability options.

Example Quotes - £50,000 of Critical Illness Insurance for non smokers

Age 20 Year Level Term Critical Illness 30 Year Level Term Assurance 30 Year Mortgage Reducing Term Assurance
30 £11.73 £14.24 £10.27
35 £16.32 £19.86 £14.37
40 £22.80 £34.06 £20.68

Example Quotes - £50,000 of Critical Illness Insurance for smokers

Age 20 Year Level Term Critical Illness 30 Year Level Term Assurance 30 Year Mortgage Reducing Term Assurance
30 £17.18 £21.88 £14.80
35 £26.45 £33.32 £22.12
40 £40.99 £54.74 £33.14

Should I just go for the cheapest price for my Critical Illness insurance?

Cost does not denote how comprehensive a policy is so it won't always follow that a policy that costs more will be more comprehensive or vice versa. Policies cover different illnesses and some cover more than others. Some will include important additional benefits such as Children's Critical Illness benefit and illnesses that pay a partial payment.

Checklist before you buy Critical Illness insurance

  • Listed Illnesses - look at the list of illnesses that you are covered for and compare these with others in the same price range.  You might find that there is a more comprehensive policy available at a similar cost.
  • Partial Payments - if available, the policy will list less severe illnesses for which you can claim around 10-25% of your sum assured. Also check whether the payout will reduce what you can claim if you are diagnosed with a full payment illness. Again, you may find that you're able to find a policy with this benefit in the same price range.
  • Children's Critical Illness Cover - some insurers include this as standard however some will charge an additional cost and so this may push the cost up.
  • Total and Permanent Disability - again, this may be included or added at an extra cost depending on the insurer.
  • Death and Terminal Illness Benefit - most critical illness insurance policies are sold with life insurance included. It is also worth exploring whether the policy can be arranged so that the life insurance continues after a critical illness claim.

Insurance companies also compete with others by including benefits like access to virtual GPs, counselling, legal advice, health/nutritional engagement amongst others. These are benefits that you're able to use even if you're not claiming against the policy and can be extremely valuable and so worth considering when you are comparing policies.

Furthermore, each insurance company may have more than one level of critical illness insurance. A lot of the insurers provide a basic product that is targeted at those people who want a cheaper price as well as a comprehensive version that covers some additional illnesses and other enhancements.

You can read more in our article about Critical Illness Claims.

Will the cost of my Critical Illness policy change after I start it?

Earlier in this article, we talk about balancing the benefits of this type of insurance with cost. Having worked out what you can and wish to afford, be very careful that the cost doesn't become unaffordable as time goes on.

The cost of your critical illness insurance policy will be defined in one or more of the following ways:

  • Guaranteed - this means that the rate for the insurance is fixed and will not change during the term of the policy
  • Age-increasing - this means that the cost of your policy will increase each year with your age
  • Low start - this means that the cost of your policy starts low but will increase over the years
  • Reviewable - this means that the cost of your policy will be reviewed from time to time and adjusted based on claims experience

It is possible to your policy to have a combination of the above descriptions. For example, you may have a guaranteed rate but it is increasing with your age each year and is detailed within your policy so you can see what the costs in any given year will be. If you are unsure about whether your premium will change and how, it is best to speak with a specialist critical illness insurance adviser*.

How to find the best Critical Illness insurance at the cheapest price

So, the answer to what may have seemed like a simple question, is not so simple. There are many things to consider when you buy your critical illness insurance. If you've read through this article and it has left you feeling that you need some expert guidance to ensure you're choosing correctly, you won't be alone. In my view, critical illness insurance is complex and although there are plenty of ways to buy the policy online, they're not necessarily the best route for you.

Getting the best deal and ensuring you get value for money is no doubt extremely important to you and when you purchase critical illness insurance it should be no different. There are aspects to the insurance that will appeal to some but not to others, depending on your personal circumstances and so deciphering what adds value for you personally will help you to hone in on what is the best and cheapest critical illness insurance for you.

We have researched and identified a company that provides specialist advice for critical illness insurance* as well as other personal insurances like life and sickness insurances. Its advisers provide tailored advice that is regulated by the financial conduct authority.  They are experts in this area and provide personalised and free advice to guide you to the right solutions at the best prices.

What's more is that, as a Money to the Masses reader, you'll receive up to £100 cashback once you've arranged your policies.

 

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. This 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

Looking for a financial adviser near you?

Do you need financial advice? An independent financial adviser can show you how to make the most
of your money. Find your nearest qualified and regulated adviser using this VouchedFor search tool.