A Guide To Critical Illness Cover

Jane Wardle

Written by Jane Wardle on February 11, 2019

Updated February 11, 2019

Woman searching for critical illness cover online

Life can be unpredictable, and it is essential that you are properly prepared for all eventualities. Nobody ever expects to fall ill, but when the worst happens, it can cause some serious problems for both you and your family.

Critical illness cover can provide you with peace of mind that you will be covered should an unexpected illness occur, but it isn’t always the most straightforward product to understand. It is not nice to think about what might happen should you become seriously ill, but your loved ones might find themselves in a difficult financial position if you haven’t planned ahead.

This guide explains everything you need to know about critical illness cover, including what it is, how it works, and what is costs.

What is critical illness cover?

Critical illness cover is a type of insurance that is designed to pay out a tax-free lump sum if you are diagnosed with a critical illness or specified medical condition. Most policies will come with a defined list of illnesses that you would be covered for, and some may state how serious the condition must be in order to receive the payout.

Critical illness cover is designed to help support you and your loved ones financially while you handle your diagnosis and can focus on recovery without worrying about your finances. You will have peace of mind that you and your family will have a stable financial situation at a time in your life that is sure to be overly stressful for everybody.

Critical illness cover is not the same as a life insurance policy and can be taken out as an extra form of protection in addition to life insurance.

How does critical illness cover work?

Critical illness policies work on a term basis, which means during the term you will be fully covered, but once the term ends all cover will stop. When you take out the insurance you can choose how long you want to be covered for, for example, you might choose to be covered until your mortgage has been fully paid, or until your children have grown up.

The amount that you will receive should you claim will depend on the length of your policy and how much you pay every month. During your policy term, should you fall ill with one of the defined medical conditions, then you could claim your tax free payout.

You can spend the money however you please, and many people choose to pay off their mortgage or invest it to generate an income for their families.

A lot of critical illness cover companies will offer children’s cover at no additional cost, so if one of your children fall seriously ill you will also receive a payout. The amount that is paid out for children is usually limited to between £10,000 and £25,000.

What are the different types of critical illness cover?

There are two types of critical illness cover to choose from, and it is important you understand your options before deciding which type of insurance is right for you are your family:

  • Increasing cover: Increasing cover means that the amount of cover you will receive, and the amount you pay every month, will increase each year. This is designed to hold its value against inflation and protect you from rising costs.
  • Decreasing cover: Decreasing cover means that the value of your cover will decrease every month, but what you pay will remain the same for the entire duration. This means you will always be paying a fixed fee and won’t have to increase your monthly payments every year.

Increasing cover is best for ensuring that your salary and living standards are covered should you need to claim, while decreasing cover is best if you want to use the payout to cover any debts or loans you are paying off.

How much does critical illness cover cost?

Critical illness cover is paid for as monthly payments for the duration that you choose to be covered for. The price of these monthly payments will depend on a number of different factors including:

  • Your age
  • The level of cover you want
  • If you are, or have ever been, a smoker
  • Your current health, such as your family medical history and weight
  • Your occupation, as some jobs will carry a higher risk to your health.

Critical illness cover is designed to help individuals who have families that depend on their salaries, those who don’t have enough savings to live on if something was to happen, or have a job that will not cover long periods off work.

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