Critical Illness Insurance
Life is unpredictable. When a serious illness strikes, it can turn your world upside down—not just emotionally, but financially too. That’s where critical illness insurance comes in. But how does it work, who really needs it, and what should you watch out for when buying a policy? Let’s break it down.
What Is Critical Illness Insurance?
Critical illness insurance pays out a tax-free lump sum if you’re diagnosed with a specific serious medical condition listed in your policy. The idea is simple: If you’re too unwell to work or your household costs go up because of illness, you get a payout to use as you need.
Commonly covered illnesses include:
Cancer (of a certain severity or type)
Heart attack
Stroke
Multiple sclerosis
Organ transplant
Major organ failure (e.g. kidney, liver)
Parkinson’s or Alzheimer’s disease (often with restrictions)
Loss of limbs or sight
This list is really important because if you get an illness that isn’t listed it won’t be covered! Every policy will have its own detailed list—so it’s crucial to check the small print before you buy.
How Does It Work?
Choose a critical illness policy on its own, or bundle it with life insurance for broader protection.
The amount depends on your age, health, lifestyle, job, and the level of cover you choose. Review your needs regularly as your life circumstances change.
If you’re diagnosed with an illness named in your policy (like certain cancers, heart attack, or stroke), contact your insurer to start your claim. Medical evidence will be needed.
The payout is tax-free, and there are no restrictions on how you use the money. You can use it for anything—clearing debts, paying bills, covering medical costs, or just giving yourself financial breathing space.
Most policies end once you’ve received a payout, but some offer “standalone” or “additional benefit” options where your cover continues or you can claim again for a different condition. Always check your policy details.
What Can the Payout Be Used For?
There are no rules—you decide. Most people use the payout to:
Replace lost income if you’re unable to work
Pay the mortgage or rent so you can stay in your home
Fund private healthcare, treatment, or rehabilitation
Cover daily living costs or childcare
Help a partner take time off work to support you
Make adaptations at home (e.g. wheelchair access, stairlifts)
Take a break or travel for recovery
It’s about giving you options and security at a tough time.
Do You Really Need Critical Illness Insurance?
It’s not a must for everyone. So here are some useful questions to ask yourself to help you determine whether its right for you:
(Partner, children, elderly parents)
- Yes: If others rely on your income, critical illness insurance can help protect their standard of living if you can’t work due to illness. It can cover living costs, childcare, or even help pay for extra support.
- No: If you have no one financially dependent on you, you may need less cover, or could consider a lower payout. Focus on what you’d need for yourself (e.g. to clear debts or cover rent/mortgage).
- No: If you’d struggle to pay the bills, mortgage, or rent if your income stopped, critical illness insurance could provide crucial financial support and help you stay afloat.
- Yes: If you have other sources of income or a partner who could cover costs, your need for insurance may be lower. Consider how long your backup would really last.
- No: Without employer sick pay or critical illness cover, you’ll need to rely on your own savings or insurance. A policy can bridge the gap and offer peace of mind.
- Yes: Check how much cover your employer provides, and for how long. If it’s generous, you might only need extra insurance to top up or extend your protection.
Would it last if you had long-term time off work?
- Not much: If you don’t have a substantial savings buffer, critical illness insurance can provide a vital safety net if illness strikes.
- Plenty: If your savings would comfortably cover all your expenses for a year or more, you may not need as much cover—or any at all.
- Yes: If you have ongoing financial commitments, a policy can make sure debts are paid and you don’t fall behind if you become ill.
- No: With no debts to worry about, your insurance needs may be less. But still consider regular living costs and future plans.
If you have no dependents, plenty of savings, and generous work benefits, you may be able to rely on those instead—just be sure you’ve checked the details.
What's the Difference Between Critical Illness Insurance and Life Insurance?
There are so many different types of insurance out there it can be confusing to know which ones you need! Below is a table that outlines the key points and differences between Critical Illness Insurance, Income Protection and Life Insurance.
Many people combine all of these policies as part of a “protection plan,” to cover multiple risks, but hopefully this table will help you work out what might be appropriate for you.
| Critical Illness Insurance | Life Insurance | Income Protection | |
|---|---|---|---|
| Pays Out When | On diagnosis of a serious illness listed in your policy (e.g. cancer, heart attack, stroke) | If you die during the policy term | If you're unable to work due to illness or injury (not just specific conditions) |
| Payout Type | Tax-free lump sum | Tax-free lump sum | Regular monthly income (usually a percentage of your salary) |
| Who Receives the Payout | You (while alive) | Your chosen beneficiary (family, partner, etc.) | You (while unable to work) |
| What It's For | Any use—typically to pay off mortgage, cover bills, pay for treatment, or adapt your home | Any use—typically to provide for dependents, clear debts, or cover funeral costs | To replace lost earnings and help pay everyday expenses while you're off work |
| When It Ends | After a claim is paid, or at the end of the policy term | After a claim is paid (death), or at the end of the policy term | When you recover, reach the end of the benefit period, retire, or the policy term ends |
| Typical Uses | Cover large one-off costs if you become seriously ill | Provide for loved ones after you die | Protect your income and lifestyle if you’re off work long-term |
| Key Limitation | Only pays out for illnesses named in the policy | Only pays out on death during the policy term | Won’t pay out if you lose your job for reasons other than illness/injury |
Tips for Choosing the Right Policy
Picking the right policy isn’t just about price. Here’s how to do it smartly:
- Not all policies are equal. Some cover 40+ illnesses, others just a handful.
- Look for cover for the most common and costly conditions—like major cancers, heart attack, and stroke.
- Some policies only pay for “severe” versions of an illness. Always check the policy definitions and wording carefully.
- Pre-existing conditions: You may not be covered for illnesses you’ve already had, or for related future conditions.
- Lifestyle: Smoking, hazardous jobs, or risky sports can increase your premiums or lead to specific exclusions.
- Survival periods: Some policies require you to survive a certain number of days (often 14–30) after diagnosis before they pay out.
- Prices and levels of cover vary widely between insurers—never buy the first policy you see.
- Use a comparison website, or speak to a specialist broker who can help you weigh up your options.
- Consider not just the price, but the number of conditions covered, how claims are handled, and customer service ratings.
- Some policies are “standalone”, while others are bundled with life insurance. Decide whether you want just critical illness, or both together.
- Combined policies are often cheaper, but if you claim for one, your cover for the other may reduce or end.
- Think about what’s most important for your family’s situation and budget.
- How much would you and your family need if you couldn’t work for a year or more? Consider debts, living costs, and future plans.
- Choose a policy term that matches your biggest financial commitments—such as your mortgage length or until your children are independent.
- Don’t just guess—take time to work out a realistic figure.
- Some policies include helpful extras, such as free nurse support, counseling, or access to medical second opinions.
- These added benefits can provide practical support for you and your family if you ever need to claim.
- Some workplaces include critical illness insurance as an employee benefit, or let you buy extra at a discounted rate.
- Always check your work benefits before buying your own policy—there’s no need to pay twice.
- Some policies allow your cover amount to rise with inflation (this is sometimes called “indexation”).
- This helps make sure your payout keeps its value over the years, even as the cost of living rises.
- Be honest when applying: Not disclosing a medical issue could invalidate your policy and result in no payout.
- Keep your paperwork and contact details up to date: Make sure making a claim is as smooth as possible for you and your loved ones.
- Review your policy every few years: Your needs can change as your family grows or debts reduce—so should your cover.
- Ask for help if in doubt: Speak to an independent financial adviser or protection specialist.
Finding a policy
We can’t recommend specific insurance policies, but you we have listed some common brokers/ providers below to help you with your search:
Need Help Choosing Critical Illness Insurance?
Critical illness cover can be complicated—but you don’t have to figure it out alone. Specialist brokers like LifeSearch and Cavendish Online can compare policies from top UK insurers, explain what’s covered, and help you find the right plan for your needs and budget.
Summary
Critical illness insurance isn’t something everyone needs, but for many people, it’s a safety net that protects your financial wellbeing if life throws you a curveball. It gives peace of mind, letting you focus on recovery—not money worries—if you’re hit by a major illness.
Not sure if you need it? A quick chat with a financial adviser (or a thorough read of your work benefits and savings) can help you decide if critical illness cover makes sense for you and your family.