Critical illness cover: what it is and whether it's worth it

Life insurance pays out if you die, but what if you survive a serious illness and cannot work? That is where critical illness cover comes in. This guide explains what critical illness cover is, what it pays out for, how it differs from life insurance, and whether it is worth the extra cost.

What critical illness cover is

Critical illness cover pays out a tax-free lump sum if you are diagnosed with one of a list of specified serious illnesses during the policy term. Unlike life insurance, you do not have to die to claim; surviving a serious illness is the point. The money can be used for anything, such as paying the mortgage, covering lost income, funding treatment or adapting your home, giving you financial breathing space at a difficult time.

What it covers

Critical illness policies cover a defined list of conditions, which varies between insurers but typically includes serious illnesses such as cancer, heart attack and stroke, among others. More comprehensive policies cover a longer list of conditions and may pay partial amounts for less severe cases. It is important to understand that critical illness cover pays out only for the specific conditions listed in the policy, and only where the diagnosis meets the policy's definition.

How it differs from life insurance

The key difference is when each pays out. Life insurance pays out when you die, supporting your family after your death. Critical illness cover pays out while you are alive, if you are diagnosed with a covered serious illness, supporting you and your family during illness. They protect against different risks, which is why many people consider both, as our guide to life insurance explained sets out. You can often buy critical illness cover combined with life insurance.

Combined or standalone

Critical illness cover is frequently sold combined with life insurance, where the policy pays out on death or on diagnosis of a critical illness, whichever happens first, and then ends. It can also be bought as standalone cover. Combined policies are convenient and can be cost-effective, but it is worth understanding that a combined policy usually pays out only once, so a critical illness claim would typically end the life cover too.

How common are claims?

Critical illness claims are far from rare. Across the industry, insurers pay out well over a billion pounds a year in critical illness claims, with the average claim around £67,600. Cancer is consistently the most common reason for a critical illness claim. These figures show that serious illness during working life is a real risk, and that for those affected, the payout can be a significant financial support at exactly the time it is needed.

Checking the definitions

Because critical illness cover pays out only for listed conditions meeting specific definitions, the detail matters enormously. Two policies at different prices can cover different numbers of conditions and define them more or less strictly. A cheaper policy may cover fewer conditions or have tighter definitions. When comparing critical illness cover, look beyond the price to the list of conditions and the definitions, since this is what determines whether a claim would actually be paid.

Is it worth it?

Whether critical illness cover is worth it depends on your circumstances. If a serious illness would leave you unable to work and struggling to pay the mortgage or bills, the financial protection can be valuable. It does cost more than life insurance alone, because claims are more likely during working life. For some, income protection, which pays a regular income if you cannot work, may be a better or complementary fit, as the next section explains.

Critical illness versus income protection

Critical illness cover and income protection are sometimes confused but work differently. Critical illness pays a one-off lump sum on diagnosis of a listed condition. Income protection pays a regular replacement income if you cannot work due to almost any illness or injury, not just listed conditions, until you recover or retire. Depending on your needs, one may suit you better than the other, or you may want both, as our guide to income protection explains.

Cover for children

Many critical illness policies include some cover for the policyholder's children at no extra cost, paying a smaller lump sum if a child is diagnosed with a covered condition. The amount and conditions vary, and it is not a reason to buy on its own, but it can provide valuable support, for example to allow a parent to take time off work, if a child becomes seriously ill. Check whether and how children's cover is included when comparing policies.

Additional benefits to look for

Beyond the core conditions, critical illness policies often include extra features worth comparing. Some pay an additional or partial amount for less severe conditions, or for total and permanent disability. Some include support services such as access to medical helplines or second opinions. These benefits vary widely between insurers, so when comparing critical illness cover, look at the whole package rather than just the headline list of conditions and the price.

Older policies and updated definitions

Medical understanding and policy definitions evolve, and an older critical illness policy may cover fewer conditions, or define them more narrowly, than a modern one. If you have held a policy for many years, it is worth checking what it actually covers, since newer policies may offer broader protection. Switching is not always beneficial, because you would re-apply at an older age and any new conditions you have developed might be excluded, so weigh it carefully.

The cost of critical illness cover

Critical illness cover costs more than life insurance alone, because a serious illness during your working life is more likely than dying during the same period. Buying it combined with life insurance can spread the cost, while standalone critical illness cover is also available. The price depends on your age, health, whether you smoke, the sum assured, the term, and how comprehensive the list of covered conditions is. Because cover and price vary so widely, comparing like for like, and taking advice where helpful, is the best way to find a policy that would genuinely pay out when you needed it, rather than simply the cheapest one on a comparison page.

In short

Critical illness cover pays a tax-free lump sum if you are diagnosed with a serious illness from a defined list, such as cancer, heart attack or stroke, while you are still alive. It differs from life insurance, which pays on death, and is often bought combined with it. Claims are common, averaging around £67,600, with cancer the leading cause. Check the conditions and definitions carefully, as they determine whether a claim is paid.

Where to get help and next steps

Compare it with income protection, read life insurance explained for the basics, and work out cover levels with how much life insurance you need. This is general information, not financial advice.