What is critical illness cover?

  • Provides a tax-free lump sum
  • Cover if diagnosed with a serious illness
  • Covers a wide range of illnesses
  • Available as part of your life insurance policy, (for an additional cost)
  • Cover from 33p-a-day º
Critical illness cover summary

Statistically, we are more likely to suffer from a critical illness during our working lives than to die.

Without cover protection in place, the loss of income due to a critical illness could result in a serious financial strain on your loved ones.

Critical illness cover (or critical illness insurance) provides a lump sum if you are diagnosed with a specified life-changing (but not terminal) illness, covered by your policy.

  • Could you continue to meet mortgage repayments?
  • Would you be able to fund your family's current lifestyle?
  • Do you have sufficient savings to adapt to a new way of life?


A critical illness pay out is tax-free and can be used for whatever you deem necessary. For example, it can help to cover:

  • Private medical treatment
  • Necessary adaptations to your home
  • Loss of income if you are no longer able to work
  • Family lifestyle expenses

You may want to read the Association of British Insurers (ABI) definition of critical illness insurance.

How does critical illness cover work?

Generally speaking, there are two types of critical illness; combined cover and standalone cover.

Combined cover is when a critical illness element is added to a life insurance policy for an extra cost.

The two must be taken out simultaneously and as a result, you only pay one monthly premium.

Whilst this is usually cheaper compared with having two separate policies, it does mean that the policy will only pay out once.

Therefore, if you make a claim when diagnosed with a critical illness, your policy will expire.

A standalone policy, on the other hand, involves paying for a separate critical illness policy.

This can run alongside life insurance cover or be your only layer of protection.

Either way, if you are diagnosed with a critical illness, you can make a claim and any other forms of cover you have will remain intact.

Reassured is unable to provide standalone critical illness cover, however, we can help you arrange either a life insurance policy on its own or life insurance combined with critical illness cover from just 33p-a-day.

How much critical illness cover do I need?

When determining how much critical illness cover you require, it is important to consider how much income you would need if you were no longer able to work.

You should consider:

  • The outstanding balance and monthly cost of your mortgage
  • Any outstanding debts in your name
  • Daily living costs of you and your family
  • The cost of treatment, home adaptations and carers

This figure can then be used as a guide to determine the level of critical illness cover you require.

Think about both the cover you require at present, but also the coverage you may need in the future, as your circumstances change.

This will help future proof your critical illness cover.

How much life insurance with critical illness cover do you need?

Enter your financial commitments to understand the level of cover you require.

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£137,934 is the estimated mortgage debt per household in the UK.

The purchase of a home is likely to be the largest financial commitment any of us will make in our lifetime. Your life insurance should cover your remaining mortgage balance to allow your loved ones to stay in the family home should anything happen to you.

Source: Moneynerd.co.uk

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The average monthly household budget in the UK is £2,548 (that’s £30,576 per year), which is spent on transport, food & drink, utilities (gas, electricity, water etc), clothing, council tax and leisure activities.

With energy prices hitting a record high and the cost of living rising sharply in the UK, you may wish to factor in utility bills and family living expenses into your cover.

Source: Nimblefins.co.uk

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The average personal debt of UK adults has risen to £34,566 (not including mortgage debt), with credit cards, personal loans and overdrafts being the most common forms of debt.

Factoring in any debts into your life insurance cover means that, if they need to be paid back from your estate after your passing, your loved ones won’t miss out financially.

Source: Money.co.uk

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According to SunLife, the average cost of a funeral in the UK is £3,953 (with the overall cost of dying at £9,200).

Funeral costs have increased by 116% since 2004 and are a significant cost which should be factored into the amount of life insurance you secure.

Source: SunLife.co.uk

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When factoring in cover for your children, you may wish to calculate the amount based on how long it is until they reach financial independence.

This could include childcare (£7,000 per year for part-time care), school expenses (£1,519 per school year for uniforms, lunches, stationary etc), as well as an additional sum for further education (this could be a contribution of up to £5,000 per year).

Sources: Daynurseries.co.uk, Primarytimes.co.uk & Savethestudent.org

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2 in 5 adults say they are relying on an inheritance to fund their retirement.

Factoring in an inheritance to your sum assured could allow loved ones to live a more financially comfortable life. Alternatively, you could leave a cash gift to a charity of your choosing.

Source: Moneyage.co.uk

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If you’re lucky enough to have your own savings or are part of the 30% of UK residents who already have a life insurance policy in place, this can provide financial protection for loved ones.

By entering your current cover, savings or death in service amount you can reduce the sum assured you require.

Source: Scottishbusinessnews.net

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How much is critical illness cover?

The cost of critical illness cover is based on the level of risk you pose to the provider.

Therefore, for those who are older, smoke or have a less than favourable medical history, the cost of premiums will be higher.

For this reason, it is essential to compare critical illness quotes to help you find a good deal.

At Reassured, our award-winning staff can help with this, saving time and money.

Joint critical illness cover

Taking out joint life insurance with critical illness cover allows you to cover two people simultaneously, whilst saving money each month.

Taking out joint cover is cheaper than paying for two individual policies, however, it does expire after a claim has been made.

This means that if one partner falls ill or passes away, and a claim is made on the policy, a pay out will be made. However, the remaining partner will then be left with no cover.

This could result in them having to obtain a new policy when older. As a result of the increased risk they now pose, they are likely to have to pay inflated premiums.

Depending on the family history of both partners, detrimental health on one side could result in inflation of premiums, resulting in the other partner paying over the odds.

In some instances, certain illnesses will be excluded from a critical illness policy if that condition has been present in the past.

Due to various reasons, if both partners require life insurance with critical illness cover and your budget allows, it is likely to be more beneficial to take out two individual policies.

How long does critical illness cover last?

Critical illness cover taken out with term-based life insurance provides you with protection for a specified period of time.

This term is determined during the application process and is affected by your requirements for protection.

Generally speaking, the longer you require cover, the more you will pay, as the chances of you making a claim during the policy term increase.

When taking out life insurance with critical illness cover you should consider the remaining length of your mortgage and how long others are likely to be dependent on you.

The answers to these questions will help you to determine how long you require your life insurance with critical illness cover.

Ultimately, most critical illness insurers have an upper age limit to which they will provide cover; usually between 70-84 years old. Therefore, you'll not be able to secure a term which runs past the upper age limit for the provider, as at this point the cover must cease. However, your life insurance can last longer depending on the term you choose.

What does critical illness cover?

Critical illness cover provides a cash lump sum pay out for a serious, life-changing illness, which is not terminal.

The illnesses specified can differ between insurers, therefore it is essential you are aware of exactly what conditions your policy provides cover.

Critical illness cover exclusions

Occasionally, critical illness will provide exclusions if you have disclosed certain medical conditions during the application.

For example, a specific type of cancer may be excluded if there is a family history of its presence, meaning that if you are diagnosed with this condition, a pay out will not be made for this.

Critical illness list

As discussed, the specific illnesses covered within your policy can differ significantly depending on your policy and insurer.

Typically heart attacks, strokes and some forms/stages of cancer are covered by critical illness cover.

These are by far the most prevalent conditions which initiate a critical illness claim to be made.

Other covered illnesses commonly include:

Critical illness payout

Critical illness pay outs occur upon diagnosis of a life-changing illness specified within the policy, as long as you survive a minimum of 14 days from diagnosis.

Whilst most policies will pay out the full sum when a claim is made, some insurers will weight the pay out amount based on the severity of the illness.

Meaning, that the more severely your life is affected or the further along the illness is, the higher the pay out sum you will receive.

Tax-free lump sum

Generally speaking, both critical illness cover and life insurance can provide a tax-free lump sum.

However, in order for this to be the case for life insurance, the policy may need to be written in trust if this is offered by the provider.

Without undergoing this process, the pay out forms part of your estate. Thus, anything over the value of £325,000 is subject to 40% inheritance tax.

With critical illness, however, no action is required to ensure the pay out is tax-free.

Is critical illness cover worth it?

Whether or not critical illness cover is worthwhile will depend on your individual circumstances.

It is important to consider:

  • Whether your lifestyle would be affected by a loss of income if you were no longer able to work
  • If you could afford changes to your home and payment of carers (if required)
  • Do you have any savings you could fall back on?
  • Whether you have the budget to pay the premiums each month

If your lifestyle is likely to be affected and/or you do not have enough savings to cater for the change in lifestyle a serious illness would bring, having critical illness cover in place is highly likely to be worthwhile.

Life and critical illness cover

Nowadays, most life insurance policies come with the option to add critical illness cover (and this is the only option we offer at Reassured).

This will increase the cost of your premium but will mean that if you are diagnosed with a critical illness you will receive a pay out.

Whilst this extra layer of cover can help maintain your existing lifestyle, if you are diagnosed with a serious illness, it does mean that your cover expires.

Whole of life and critical illness cover

Unfortunately, it's not possible to combine critical illness cover with a whole of life insurance policy.

Therefore, if this is the type of life insurance you require but also wish to have critical illness cover in place, you must have two separate policies in place.

Can you get critical illness cover on its own?

As previously mentioned, it is possible to obtain critical illness cover as a standalone policy with some insurers.

This will involve paying an additional premium on top of any other existing life cover you have.

As mentioned, Reassured can’t help you arrange critical illness cover on its own, but we can arrange a life insurance policy with critical illness included at an extra cost.

Income protection vs critical illness

Critical illness and income protection insurance are often confused, as they both serve the purpose of paying out if you are unable to work.

However, the two are not the same.

Critical illness pays out a one-off tax-free payment if you are diagnosed with a life-threatening illness and unable to work.

Whereas, income protection insurance provides regular payments, equivalent to a percentage of your salary, to help with the loss of income whilst you are out of work.

Income protection tends to pay out for a wider range of causes, including critical illness, minor illness, accidents and stress.

Critical illness, on the other hand, only pays out on a life-changing illness but does not require you to be off work in order to make a claim.

Typically income protection insurance is significantly more expensive than critical illness, is a far more complicated product and cover can differ dramatically between insurers.

Children’s critical illness cover

As with life insurance, it is unlikely to be beneficial to take out critical illness cover specifically for your children.

If they were diagnosed with a serious illness, it is unlikely to result in any loss of income, (unless you were to take time off to care with them).

With the large majority of adult critical illness policies, your children can also receive a certain level of cover. Some providers include child cover at no additional cost, whilst others charge for this as an optional benefit.

If your child is diagnosed with a critical illness, you can make a claim on your policy.

The amount you receive will often be capped, (usually up to either £50,000 or 50% of the overall policy total) - although this will vary between insurers.

This money can be used to replace a lost income whilst you take time off work or to pay for any necessary home adaptations.

Making a claim if your child is diagnosed with a critical illness in some instances reduces the overall pay out.

Cover for your children on your critical illness will usually remain in place until they reach the age of 18 or 21.

Critical illness cover mortgage

One of the key uses of critical illness cover is to ensure you are still able to repay your mortgage if you were to fall seriously ill.

The pay out sum is often set to help cover the outstanding balance of a mortgage.

If you are no longer able to work, you can make a claim and use the funds to help clear the mortgage, allowing your family to remain in the family home.

Without such cover, you may struggle to meet the repayments, resulting in either possible repossession or relocation.

This would obviously cause you and your family significant additional stress, at an already very difficult time.

Critical illness cover for smokers

Like life insurance, the cost of your critical illness premiums are calculated based on the likelihood of a claim.

Due to the health issues associated with smoking, those who smoke are likely to pay significantly higher premiums.

To ensure you do not pay over the odds, it is best to compare multiple quotes to find the most cost-effective deal.

Most insurers class you as a smoker if you have smoked tobacco or used any nicotine replacement products within the past 12 months (and for some insurers this may be longer).

As a result, it is likely you will still experience an inflated premium when taking out critical illness within this period.

What is the difference between critical and terminal illness cover?

It is a common misconception that the terms critical illness and terminal illness are interchangeable.

This is not the case.

Terminal illness cover tends to be included as standard with term life insurance.

It provides the option to make an early claim if you are diagnosed with an illness and given less than 12 months to live.

Critical illness cover, on the other hand, comes at an additional cost, (either with your life insurance or as a standalone policy).

It provides you with a tax-free lump sum pay out if you are diagnosed with a serious, yet not life-threatening, illness.

For more information on how this cover differs, see our dedicated terminal vs critical illness article.

Making a critical illness claim

Upon diagnosis of a critical illness specified within your policy, it is possible to make a claim.

This process involves contacting your insurer who will have a team on hand to talk you through the process.

If you have arranged your life insurance with critical illness policy through Reassured, our customer services team can support you if required.

Compare critical illness insurance quotes

The cost of critical illness and the illnesses covered can differ significantly between insurers.

As a result, it is essential to compare quotes to ensure you are getting the right cover, at a cost-effective price.

At Reassured, our award-winning team can help you with this, saving time and money.

We can also explain any jargon you may not understand and help with the application process.

What's more, our award-winning service is completely fee-free.

Simply get in touch today to see if we can help you arrange the best critical illness cover to meet your specific needs.

Sources:

[1] https://www.abi.org.uk/globalassets/files/publications/public/protection/new-abi-guide-to-minimum-standards-for-critical-illness-cover.pdf

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