What Is Critical Illness Insurance?
Critical illness insurance pays a tax-free lump sum if you are diagnosed with one of a defined list of serious medical conditions during the policy term. Unlike income protection, critical illness cover provides a one-off payment you can use however you choose: clear a mortgage, adapt your home, fund treatment or bridge a financial gap while unable to work.
- Critical illness insurance pays a lump sum on diagnosis of specified serious conditions. Cancer, heart attack and stroke account for the majority of UK claims.
- ABI data shows average critical illness claim values around 67,000 GBP with claim acceptance rates above 90% at most major insurers.
- It is distinct from life insurance (pays on death) and income protection (replaces ongoing income). The three products address different risks.
- Pre-existing conditions are typically excluded. Accurate disclosure at application is essential - non-disclosure can void a claim.
What Conditions Are Covered?
The ABI publishes model definitions used as a baseline by many UK insurers. Core conditions include: cancer (of specified severity); heart attack; stroke; multiple sclerosis; total permanent disability. Many policies extend to 30-50+ conditions. Comparing policy definitions, not just premiums, is essential.
Cancer: The Most Common Claim
Cancer accounts for the majority of critical illness claims. Most policies exclude very early stage cancers and non-melanoma skin cancers that have not spread beyond the skin. The ABI model definitions standardise severity thresholds but wording varies between insurers - read policy conditions carefully.
How Much Does It Cost?
Premiums depend on age, health history, smoking status, cover amount and term. As a rough guide, a healthy 35-year-old non-smoker might pay 30-60 GBP per month for 100,000 GBP of cover over 20 years - though quotes vary substantially. Use FCA-regulated brokers or comparison tools for personalised quotes.
Income Protection vs Critical Illness
Income protection pays a regular monthly income (typically 50-70% of earnings) if you cannot work, for as long as needed up to the policy term. Critical illness pays a one-off lump sum on diagnosis. Many advisers recommend considering both as they address different financial risks.
Frequently Asked Questions
Does critical illness cover all cancers?
No. Most policies exclude very early stage cancers and non-melanoma skin cancers confined to the skin. Cancer definitions vary between insurers. Check the policy conditions for the severity threshold that applies to your policy.
What if I have a pre-existing condition?
Pre-existing conditions are typically excluded or the premium is rated upwards. Disclose all relevant health history accurately. Failure to disclose can result in claim rejection or the policy being voided.
Is the payout taxable?
No. Critical illness payouts are tax-free for UK individuals. The lump sum can be spent without creating Income Tax or CGT liability.
Can I get critical illness cover through my employer?
Some employers offer group critical illness cover as part of employee benefits. Group policies are typically cheaper but may offer lower cover amounts and limited portability. Check your employer benefits documentation for details.
