What is critical illness cover?
Critical illness cover is a long-term insurance policy that pays out a lump sum if you are diagnosed with a serious illness such as cancer, stroke or heart attack during the policy term. The critical illness definition is dependent upon the insurance company providing the critical illness cover, however, as explained in the next section there are a number of conditions that are fairly standard across all critical illness insurance policies. Not to be confused with terminal illness benefit which is usually included as standard with life insurance, the key point to remember is that a critical illness policy will pay out upon diagnosis, even if you eventually go on to make a full recovery.
Although critical illness cover is a vital part of a family's protection portfolio it should not replace life insurance and is usually offered as an addition to life insurance cover. Read the following article to find out more about life insurance - How much life insurance do you need?
1 minute summary
- Critical illness insurance pays out a tax-free cash lump sum if you are diagnosed with a critical illness. In order to pay out, the illness needs to be listed on the provider's policy document
- Not all critical illness policies are the same; the number of conditions and severity of illness covered varies from provider to provider
- Types of conditions covered include cancer, heart attack, stroke, kidney failure, liver failure, major organ transplant, cardiac arrest and traumatic brain injury
- The amount of critical illness insurance you need varies depending on your individual circumstances
- An independent critical illness expert can help you to work out how much cover you need. They guarantee to beat any quote and pay up to £100 cashback when you take out a policy. Complete this simple form* to get started.
What does critical illness insurance cover?
Critical illness insurance will pay out a tax-free lump sum if the policyholder is diagnosed with one of the critical illnesses listed in the policy document. The specific medical conditions and severity of conditions that critical illness insurance covers may vary from one insurance provider to the next.
The following are some of the critical illnesses covered by the majority of insurance providers:
- Cancer – excluding less advanced cases
- Heart attack
- Kidney failure
- Liver failure
- Major organ transplant
- Cardiac arrest
- Traumatic brain injury
- Motor neurone disease – resulting in permanent symptoms
As you would perhaps expect, cancer, heart attack and stroke make up the vast majority of claims and the Association of British Insurers (ABI) released a guide in order to set out a minimum definition for each of the three core conditions (as well as 21 others). In the past, it has been difficult to compare like-for-like policies as each insurer may have a different definition, so it is good to see that the industry is taking steps to assist consumers in understanding and comparing critical illness policies.
Serious illness cover
As an alternative to critical illness insurance there is a variation called serious illness cover. It works in much the same way as critical illness insurance but the amount paid out by the insurer is dependent upon the severity of the critical illness diagnosed.
So the full sum assured will only be paid out in the most severe of cases. However, on the plus side, it includes a number of less serious illnesses or less serious definitions of the illnesses covered by critical illness insurance which will warrant a partial claim in circumstances where the critical illness insurance wouldn't have paid out at all.
The number of conditions covered by serious illness insurance is significantly higher than in a typical critical illness policy. For example, Vitality's serious illness policy covers between 153 and 182 conditions (based on the level of cover you choose), versus around 50 for a traditional critical illness policy.
Many good critical illness insurance policies now include partial payments for some less serious illnesses but the list is not as extensive as Vitality's serious illness insurance.
How much critical illness cover do I need?
Do I really need critical illness cover?
If you were diagnosed with a critical illness your life may never be the same again. Apart from the emotional strain for you and your family you will probably have to deal with financial stress as well.
- Will you still be able to work and earn an income?
- Will you incur travel expenses to receive treatment?
- Will you have to make alterations to your home due to your illness?
- Will you have to employ people to help you do the things that you are no longer able to do?
Having a lump sum of money from a critical illness cover policy will help with this expenditure while you take time off work and focus on your treatment and recovery. If you can afford critical illness cover I would always recommend that you consider it. If you can't then you should make sure you have life cover in place first and foremost and then consider income protection insurance which can provide a replacement income if you are unable to work due to incapacity.
Working out the amount of critical illness cover you need?
The amount of critical illness cover you will need will depend upon your financial commitments, current debts and other monthly expenses. Here are a few areas you need to consider in order to work out how much critical illness insurance you need:
- How much mortgage is outstanding?
- How much money is needed to meet your rent or mortgage payments each month?
- Have you any other debts?
- Estimate potential medical expenses (e.g. care home, car adaptations)
- Amount needed to pay for your household bills and essentials
- Less savings and other assets
- Less any state benefits you currently receive or may receive in the future
- Less any unearned income such as rental income or sick pay from your employer
Once you have calculated the above you will have a fairly clear idea of what sort of lump sum you will require for you or your family to continue your current lifestyle if you were diagnosed with a critical illness. Broadly speaking a good starting point is to aim for an amount of cover that will provide a lump sum that is equivalent to your level of life cover. However, that may prove expensive so you can then reduce the level of critical illness cover so that it is affordable (see the case study below). Some critical illness cover is better than none at all and will lessen the financial impact of a serious illness. Also, think about how you and your family would cope if your partner developed a critical illness. Don't just focus on yourself, consider a joint critical illness policy with your spouse and even your children.
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How do I make sure my critical illness policy will pay out?
The top five reasons insurance companies reject a critical illness claim are as follows:
- Failing to disclose relevant information when you applied for the insurance
- Claiming for a condition not covered by the policy
- The covered condition does not meet the minimum definition
- Not having the required medical information to back up the claim
- Filing a fraudulent claim
The best way to make sure that your critical illness policy will pay out is to ensure that you are honest on the application form, that you are claiming for a condition that is covered (and that you have met the definition) and that you can provide the necessary medical documentation. We would also recommend that you check the claims history of the insurance provider. To give you a guide, in 2022, according to the Association of British Insurers, 91.6% of all critical illness claims were paid out. All insurers tend to publish their claims statistics, so you should seek these out before you buy critical illness insurance.
How much does critical illness cover cost?
The cost of critical illness cover will depend on the level of benefits chosen, your age and your medical history. Your family medical history may affect the terms and conditions that are offered to you if someone in your immediate biological family has been diagnosed with a serious illness before the age of 65.
Often critical illness cover is added to life insurance in a policy that provides life insurance and critical illness cover with a payment made on death or the diagnosis of a critical illness. Usually, if you suffer a serious illness or injury that meets the definition of one of the listed claim criteria, the policy will pay out and the life insurance cover will cease. You can opt to have the policy set up so that the life insurance cover continues but this will be more expensive.
The cost of £100,000 of life and critical illness cover for a 30 year old individual in good health and a non-smoker for a period of 20 years will be in the region of £25 per month.
This is likely to increase to around £50 per month at age 40 and just over £100 pm at age 50. As you can see it makes great sense to get critical illness cover as soon as possible as the premiums will be more affordable and can be fixed for the duration of the cover.
Monthly cost of £200,000 life and critical illness cover over 25 years
|Age at application||Monthly cost for a non-smoker^||Monthly cost for a smoker^|
|25 years old||£39.42||£48.38|
|35 years old||£77.31||£102.42|
|45 years old||£172.27||£276.66|
|55 years old||£281.07||£506.27|
^all prices are based on a person with no adverse health concerns and who doesn't partake in any dangerous activities
Compare critical illness cover & case study
If you are considering critical illness insurance then it makes sense to compare the policies offered by various providers as they vary in the benefits provided and the cost of the monthly premiums. It is important to not just rely on a price comparison site. The price you will see almost certainly won't be the price you end up paying once the insurer takes into account any existing medical conditions, health history (including diagnosis of serious illnesses amongst your immediate family) and your personal circumstances.
Even if you are completely healthy and have no family history of health problems, the cheapest price may not provide comprehensive cover and often the most expensive may not do so either – this is why speaking to a critical illness insurance specialist* can help you find the best cover at a good price.
By way of example, I was personally looking to take out a £200,000 life insurance policy with critical illness cover. I was well aware that the price quoted by the well-known price comparison sites would not be offered to me due to my medical history. Generally speaking, I am very healthy although I have a pre-existing medical condition. By running a price comparison but then speaking to an insurance adviser I was able to secure a £200,000 life insurance policy with a lower level of serious illness cover (and with my pre-existing medical condition excluded) all within my budget while at the same time providing cover for my wife and two children on the same policy. On top of that, the policy offered generous rewards including 40% off gym membership and free cinema tickets and coffee each week. While the latter was not instrumental in my decision it is a nice bonus. The point is that most people would have given up on considering critical illness cover when in fact there are some great options out there. The adviser was also able to provide advice on the level of critical illness cover I would need.
The key is to talk to those with relevant expertise in the area. I therefore strongly recommend that you:
- Get in contact with an independent life and critical illness insurance specialist, such as LifeSearch* who I personally used.
- Click through to their contact form using the link above and input your contact details and LifeSearch will call you, when you specify, to offer their help and advice. The call is free, as is the advice given and there is no obligation to do anything. However, LifeSearch will advise you which critical illness cover is best for you and your budget and 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