Critical Illness Cover

What is Critical Illness Cover?

Critical illness cover is a form of insurance which pays out a tax-free lump sum in the event that you are diagnosed with a specified illness or medical condition during the term of the policy.  

Is critical illness cover and life insurance the same thing?

Critical illness cover is not the same thing as life insurance. Critical illness cover will pay out a lump sum if you are diagnosed with a certain illness that is named in the policy. Life insurance pays out if you die during the term of the policy.

When you compare life insurance with MoneySuperMarket, you get the option to include critical illness cover as an extra. The results page allows you to include or remove critical illness cover, or increase and decrease the value, to see how this affects your life insurance premiums.

Tax-free payout

The policy pays out a tax-free lump sum if you are diagnosed with one of a list of serious conditions within the policy term. 

For example, if you take out a 25-year policy with a sum insured of £100,000 and suffer a stroke at any point during that period, you would be able to claim the £100,000. 

Financial lifeline

You can spend the money how you wish, so you could use it to clear any debts, pay for medical bills or to adapt your home to your particular needs. In other words, it can offer a financial lifeline in a time of crisis.

You could also invest some or all of the lump sum to generate an income for your family to live on.  

Cover for children

Many insurers also offer children’s critical illness cover at no extra charge, though the pay-out is usually limited to between £10,000 and £25,000. 

List of conditions

With critical illness cover, you should always read the small print carefully so that you understand exactly what the policy covers. 

The list of conditions can be long, with some insurers including more than 60 ailments and injuries. But you might not get a pay-out unless the illness is particularly severe or results in permanent symptoms. 

Some forms of cancer, for example, are not included because they are easily treatable. You might also be unable to claim for cancer until it has reached a specified stage. 

Similarly, a mild stroke or mild heart attack could be excluded on the basis of severity. So it’s always important to know what ‘exclusions’ are listed in the policy small print.

Single pay-out

Most policies pay out only once. However, a number of insurers will make a small payment if you are diagnosed with a less severe illness. The policy will then continue and you could, in theory, lodge a further claim if you were diagnosed with a critical condition at a later stage. 

Premium payments

Critical illness polices stop providing cover if you stop paying the premiums. You should therefore be certain that you can afford the insurance at the outset. 

There is no cash-in value to critical illness cover, so you don’t get any money back if you survive to the end of the term or stop the policy part-way through.  

Bringing costs down

Premiums for critical illness cover depend largely on the likelihood of a claim. So, the older and more unhealthy the applicant, the higher the premium. 

You can often bring down the cost of cover by adopting a healthier lifestyle, for example, by losing weight or quitting smoking. 

Critical illness cover/life insurance combination

Critical illness cover is also usually cheaper if you buy it alongside life insurance. In fact, some insurers do not even sell standalone critical illness cover. 

But remember that there is normally only one pay-out. So, if you claim for a critical illness, you would not receive a further payout on death. 

Fixed premiums

Premiums are usually fixed, but some companies offer so-called reviewable premiums. The cost of cover is then regularly reviewed and could rise during the policy term.

Claims data

Insurance companies have to publish information about their claims and it’s worth taking a look at the data. For example, a firm might charge a low premium, but it might also turn down a high proportion of claims. 

Full disclosure

You can boost your chances of a successful claim by filling in the application form carefully and accurately. 

Make sure you answer all the questions in detail, paying particular attention to the medical questions. Insurers sometimes refuse claims because the policyholder failed to disclose all relevant health information.