Life and critical illness cover

What is critical illness cover?

Critical illness cover is a type of insurance that pays out if the policyholder is diagnosed with a serious illness during the term of their cover, if that illness is specified on the policy. The payout is a tax-free lump sum, which can be used however the policyholder and their dependents choose.

It’s often sold in conjunction with life insurance, as both types of insurance provide financial support in stressful situations. It’s a great idea to get critical illness cover if you couldn’t work due to illness, and you have loved ones who rely on your income.

Only 7% of adults in the UK have critical illness cover or income protection insurance – Source

How does critical illness cover work?

You can get critical illness cover on a standalone basis or when you buy life insurance. Your policy documents will contain a list of critical illnesses that your insurance covers. During the term of the policy, and as long as you keep up with your annual or monthly premiums, you’re covered.

If you receive a diagnosis for an illness that is on your insurer’s list, your policy will pay out a lump sum. After this payment, the term of policy automatically ends. It only pays out once.

What’s the difference between life insurance and critical illness cover?

While both life insurance and critical illness cover provide financial help at difficult times, the difference is that critical illness covers you while you’re alive and life insurance can only help after you’ve passed away.

Types of critical illness cover

As with life insurance, there are several different types of critical illness cover. Each has its own advantages and disadvantages. The right type for you depends on your personal circumstances and what you need.

Level cover

With level critical illness cover, you take out insurance for a specific amount and length of time. Your amount of cover and your premium price then stays the same throughout the term of the policy.

Level cover is great for covering ongoing payments (e.g. mortgage, school fees) and it’s also easy to budget for. However, your lump sum is not protected against inflation, so its purchasing power decreases over time.

Decreasing cover

With decreasing cover, your monthly premiums stay the same throughout the length of your policy. However, the cover amount reduces over time.

Like decreasing term life insurance, you might use decreasing critical illness cover to help meet mortgage payments. As time passes and you pay off more of your mortgage, you don’t require as much cover. Decreasing cover also tends to be cheaper than level cover.

Standalone cover

While most people purchase critical illness cover alongside their life insurance policy, you can get it on a standalone basis.

Standalone critical illness cover is a good option if you have little need for life insurance (e.g. no dependents, mortgage paid off), but still want to cover your income if you were unexpectedly ill and unable to work.

Combined cover

A combined critical illness cover policy binds your life insurance and critical illness policies together. However, it only pays out once, so if you need to claim on your critical illness cover, the policy ends and you no longer have life insurance.

Additional cover

Additional cover is the opposite of combined cover. It pays out if you receive a critical illness diagnosis, but it will also pay out a benefit to your dependents if you pass away during the length of the term.

Joint cover

While most people buy life insurance and critical illness cover individually, you can also purchase a joint policy along with your partner. Couples like to get joint cover as it’s typically cheaper than two individual policies, as well as being easier to administrate.

However, while both partners are covered, the policy only pays out once. After the payout, the policy ends and you’re no longer covered.

You can click this link to read our guide to the various types of life insurance and the best policies in the UK.

What conditions are covered by critical illness cover?

Critical illness insurance covers many different conditions. There are certain illnesses that will be covered by almost every policy, including:

Cancer (specific types and stages)Heart attackStrokeMultiple sclerosis (MS)Parkinson’s disease

There are also conditions that some policies will cover and others won’t, including:

Alzheimer’s diseaseSerious head injuriesOrgan transplantsLoss of limbsPermanent disability and permanent symptoms

Remember, every policy will be slightly different and some will cover conditions that others won’t. For example, Aviva covers 52 conditions in their critical illness cover, but other insurance companies aren’t as accommodating. Some policies may only pay your claim if your condition is severe enough.

In 2021, 92% of critical illness claims were paid out – Source

Make sure you read your policy documents carefully to ensure you know exactly what you’re covered for.

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Exclusions

Not all conditions are covered by critical illness insurance, no matter how serious they may seem. Here are some common exclusions from critical illness policies:

Non-life threatening cancersHereditary conditionsHigh blood pressureBroken bonesTemporary illnesses

Most policies will not pay out for pre-existing conditions you had before you took out your critical illness insurance.

If your diagnosis is terminal, meaning you are given a life expectancy of 12 months or less, your insurer may only settle your claim if you also have terminal illness cover. This is a great reason to combine life insurance and critical illness cover, as terminal illness cover typically comes as standard with life insurance policies.

Other reasons your policy may not pay out include:

You haven’t kept up with your premiumsYou receive a diagnosis after the term of your policy endsYou pass away straight after your diagnosis

Why do I need critical illness cover?

No matter how healthy your feel as you read this, you could fall critically ill or have a serious accident at any time. If you were unable to work and earn money, and you and your loved ones are dependent on your income, critical illness cover acts as a safeguard for your finances until you recover.

You should certainly consider purchasing critical illness cover if:

Your employer won’t cover your earnings if you are away from work long-termYou’re self-employedYou don’t have enough savings to cover your monthly outgoings if you aren’t earning

Critical illness cover fits in perfectly with life insurance to cover all bases. So, if you’re investigating critical illness cover, why not look at life insurance too?

What are the benefits of critical illness cover?

When you get critical illness cover, you don’t just get a lump sum if you fall ill. You receive so many other benefits:

Make up for lost income

What would happen if you were unexpectedly ill and unable to work? How would you earn money? Your employer may pay your salary for the first few months as detailed in your contract, but that won’t last indefinitely. If your employer doesn’t step in, you could receive Statutory Sick Pay (SSP) from the government, but that is not enough to support most people and their dependents.

If you’re self-employed or a company director, you don’t get sick pay or SSP. How would you cope if you couldn’t work?

Your critical illness cover could make all the difference as you recover from your illness, filling in the gaps and helping you meet your financial commitments.

Protect your family finances

You may have savings in the bank, but having critical illness cover could mean you don’t have to dip into your account if you were seriously ill.

Your critical illness lump sum could help you cover your everyday payments, such as your mortgage, school fees, energy bills, car payments and council tax. It could also help you keep your family in their current lifestyle, enabling you to pay for luxuries like streaming and holidays.

Meet your medical costs

If you have critical illness cover and it pays out on a diagnosis, you could use the payment to pay for private medical treatment, which could enable you to make a faster recovery.

You may also need the money to make changes to your home to help you recover.

Recover with confidence

Critical illness cover brings ultimate peace of mind. It means you can rest assured you and your loved ones will be financially supported if you fall seriously ill and you’ve taken care of everything. It’s a great feeling and it means you can look to the future – after you’ve recovered – with confidence and optimism.

Grab exciting add-ons

When you buy critical illness cover, you also get access to some handy optional extras, such as:

Children’s critical illness cover – your policy pays out a proportion of the cover amount if your child is diagnosed with a critical illnessPremium waivers – so you don’t have to pay your premiums while you cannot work due to sickness or injuryDiscounts and rewards on aids to stay healthy, like gym memberships and fitness trackers

How to buy critical illness insurance?

First, check your eligibility. If you’re a UK resident, you should be eligible for critical illness cover. Some insurers will enforce maximum age limits.

Next, get a quote for your cover. You may need to provide:

Medical history – including details of any pre-existing conditionsPersonal details– including your age, job and lifestyle choices, such as smoking and alcoholFamily details – if you’re applying for joint cover or children’s cover

You’ll probably have a choice of many different providers, all with slightly different policy conditions and cover amounts.

How much cover do I need?

The answer to this depends on the amount of financial support you think you and your loved ones will need if you fell seriously ill and was unable to work. Here are some factors to consider:

Your monthly income (and how much your family rely on it)Your financial commitments – everyday outgoings like food, bills, childcare etc.Your mortgage – Do you have a mortgage on your home? If so, how much and how long is left on it?Affordability – How much can you afford to pay every month in premiums?Your employer – How long will your employer support you if you became critically ill and couldn’t work?Savings – Do you have savings that could cover you and your family in an emergency?

Premium prices

The price you pay in monthly premiums depends on several factors, including:

How much cover you want – the higher the possible payout, the higher your premiumsAge – You’re more susceptible to health problems as you get older, so your cover will be more expensiveMedical history – If you have had health scares before, pre-existing conditions, smoke or drink heavily, your premiums could be higher than averageOccupation – If you have a job that is an accident risk (e.g. construction), you’re a risk to your insurer and they’ll charge you higher premiumsType of policy – Decreasing cover is typically cheaper than level cover, for example. Also, it’s usually cheaper to add critical illness cover to your life insurance policy, rather than buying them separately

Aviva says that the most common claim on their critical illness cover is for people diagnosed with cancer. Heart attack, stroke and multiple sclerosis is also a regular reason for a claim.