What is critical illness cover?

What is critical illness cover and how does it work?

If you are diagnosed with a severe health condition or experience a traumatic injury, taking time off work for treatment can place a severe strain on your finances.

Critical illness insurance is designed to help with financial burdens. It pays out a one-off tax-free lump sum payment when you're diagnosed with one of the specific conditions covered by your policy.

Please note this article is for information purposes only and does not constitute advice. Please refer to the particular terms and conditions of a provider before committing to any financial products.

Critical illness vs life insurance vs income protection?

Before purchasing protection, it helps to understand how different policy types work together. The table compares the three main forms of personal cover available in the UK:

• Find out more about the different types of life insurance

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How much does critical illness cover cost?

Because this protection is often sold alongside term life insurance, monthly premiums typically cover both policy types combined. 

Quotes based on £300,000 life insurance alongside £75,000 critical illness protection over 20 years for a 30-year-old non-smoker and a 50-year-old. Results ordered alphabetically. 

These quotes are estimates and are intended to provide a general indication of the cost of cover. Actual premiums may vary depending on factors such as your health, lifestyle and the specific terms and conditions of the policy.

Can you buy critical illness cover without life insurance?

Yes, you can sometimes buy it as a separate policy, without it being bundled with life insurance. Scottish Widows, for example, offers this option but we were unable to source a quote for a standalone policy online.

When choosing standalone protection, evaluate whether the amount of cover is sufficient to protect your finances on its own, or if combining it with separate types of life insurance provides better overall security. 

• Find out more: best life insurance 2026

What illnesses are covered?

The exact conditions vary between providers. However, certain illnesses and conditions caused by serious injury are covered as standard by most insurers. These include:

• cancer
• heart attack
• stroke
• organ failure
• multiple sclerosis
• Alzheimer's disease
• Parkinson's disease
• traumatic head injury.

You may have the option to add specific additional diseases to your cover for an extra charge, while some insurers will cover your children too when you take out a policy.

What isn't covered?

Your policy may only offer protection once your illness hits a certain level of severity.

Early stages of some cancers may not be included, for example. To claim for other illnesses, you may need to have permanent symptoms.

Different insurance companies may exclude different things, but critical illness policies typically won't cover:

• being diagnosed with an illness outside of your policy term
• if you pass away during the term
• if you die within a certain number of days of receiving the diagnosis
• if you are diagnosed with an illness not explicitly covered by the insurer.

It's vital that you read policy documents thoroughly so that you understand what is and what isn't covered. Many insurers will also require the illness to be verified by a UK doctor or specialist.

Critical illness cover vs terminal illness insurance

While both offer financial support during serious health issues, they are not the same. 

Critical illness cover pays out a tax-free lump sum if you're diagnosed with a serious condition listed in your policy, such as cancer or a stroke, and are expected to recover.

Terminal illness insurance, on the other hand, pays out if you're diagnosed with a condition that’s expected to be fatal within 12 months. It’s often included as part of a life insurance policy and paid early, before death, to ease financial pressure.

• Find out more: over-50s life insurance: is it worth getting? 

How does critical illness insurance work?

It is often sold alongside a life insurance policy such as term life insurance. The structure of each type of cover is quite similar. You can also buy standalone critical illness policies. 

You'll have to work out how much cover you need and how long you want the policy to run for. For example, you might calculate you need £100,000 of cover to run for a 30-year term.

You can take out critical illness cover in two main types: level cover or decreasing cover. 

• Level cover pays out a fixed amount throughout the term of the policy, making it a good option if you're looking to provide long-term financial support for your family. 
• Decreasing cover is designed to pay out less over time, in line with a repayment mortgage, so the amount you’re insured for goes down as you repay more of your loan. Premiums are usually lower because the cover reduces over time.

It's a good idea to sit down with a financial adviser and work out what sort of sums your family would need to live comfortably if you were no longer able to work due to a serious medical condition.

You could arrange cover so:

• your mortgage balance is cleared
• other existing debts are paid
• your household bills are covered
• any new medical treatment costs are accounted for
• you can take several months or years off work during a period of convalescence.

Critical illness policies pay out once, and the cover then ends. You can select whether you want the policy payout to increase over the course of the term, so that it keeps pace with inflation. Or, if your main concern is covering the cost of the mortgage, you can choose decreasing cover. 

• Find out more: mortgage protection life insurance explained 

Do I need critical illness cover?

While some state benefits are available to help people who fall ill, they are unlikely to stretch very far – at best you may be able to claim around £100 a week.

It's also worth considering critical illness cover if your employer does not offer much financial support for employees who develop long-term health issues.

You'll find details of your company sick pay entitlement in your written statement of employment, which you should receive within two months of starting work. 

Many employers offer company sick pay entitlement, which may replace all or most of your income for a period. But this can end after six months, at which point a critical illness cover payout may be helpful. 

Agency workers qualify for statutory sick pay (SSP), as do those whose employer doesn't offer a more generous sick pay policy. But this is fairly low and is unlikely to replace your full income. And it only lasts for up to 28 weeks. It's also worth noting that you're not eligible for SSP if you're receiving statutory maternity, paternity, adoption or additional paternity pay.

Taking out cover can also help with day-to-day expenses. Rather than eating into your savings, a payout from insurance may help with costs including rent payments, a repayment mortgage and energy bills.

• Find out more: what does redundancy insurance cover?

Critical illness FAQs

How much critical illness cover do I need?

To calculate your ideal coverage amount, follow these five steps: 

1. Review your monthly expenses This includes your rent or mortgage, utility bills, groceries and other essentials. Also, consider any upcoming financial commitments, such as your children's education costs or outstanding loans.
2. Assess the impact of not being able to work Imagine a scenario where you're unable to work due to a critical illness. Calculate the potential decrease in your household income during this period, factoring in any disability benefits or alternative sources of income. Think about how long you might need financial support to cover your expenses comfortably, and multiply the number of months by the likely drop in monthly income. 
3. Consider treatment costs Think about the potential costs involved in treating an illness. This includes not only medical bills but also rehabilitation expenses and any necessary adjustments to your living space, such as installing ramps or handrails.
4. Assess your financial resources It's important to assess your existing financial resources, such as savings, investments or assets, that could help cover costs. While these resources can provide a safety net, ensure you have enough for both your short-term and long-term financial needs.
5. Stay ahead of the curve Remember that your money situation might change over time. So, it's really important to regularly check your insurance cover to make sure it's still enough. Factors such as inflation and changes in how you live can influence how much you need. 

Can I get cover if I have pre-existing conditions?

You must tell the truth in your application about any pre-existing conditions – if the insurer finds out later on that you weren't entirely honest, it could void your entire policy.

Having a pre-existing condition doesn't mean you'll be unable to find critical illness insurance.

However, it does mean that any cover you do find is likely to be more expensive. It may also have more extensive exclusions than cover for people without a history of medical issues.

• Find out more: life insurance for pre-existing conditions 

How can I buy the best cover for my needs?

Start by working out how much cover you need, using the steps we've outlined. 

Then, compare critical illness policies and find one that offers the best balance of price and quality of cover. 

In some cases, you may be bundling critical illness together with life insurance, so you'll need to find a provider that offers good quality cover for both types of insurance. 

If you're confident you know what you need, you can approach providers directly or get a quote via a comparison site. However, working out the type and level of cover you need can be complicated, so it can be a good idea to discuss your needs with a financial adviser. 

When does critical illness insurance pay out?

When you make a successful claim on your policy, the money is paid out in a single lump sum.

The length of time taken to make the payment will vary between providers – though processing a claim can take months.

Contact your insurer as soon as you receive a diagnosis, so that it can talk you through the claims process and how long it's likely to take before you receive the money.

Be aware that if your cover is bundled together with a life insurance policy, if you receive a payout for the critical illness, the amount that could be paid out if you later die within the term will be reduced. Separate critical illness cover and life insurance policies avoid this.

• Find out more: can I take out more than one life insurance policy?

Will my critical illness payout be taxed?

Payments from a critical illness policy are not classed as income, so you won't have to pay any income tax on the money you receive from your insurer.

Your loved ones could face a potential inheritance tax bill, however, if you take out a joint life insurance and critical illness policy. In this case, if you make a claim but do not receive the money before passing away, the payout forms part of your estate.

If your estate is valued at more than £325,000, inheritance tax will be charged on the insurance payout.

You can avoid this by writing your insurance policy in trust. This means your policy is held within a trust and classed as being outside your estate.

• Find out more: how to write life insurance in trust