Critical Illness Cover Explained: What It Pays and When

Critical illness cover pays a lump sum if you are diagnosed with a serious illness covered by the policy during its term. When the policy is owned personally, the payout is usually free of tax. You can use the money however you choose: to reduce or clear your mortgage, replace lost income while you recover, pay for adaptations to your home or simply take time away from work without financial pressure.

What does critical illness cover pay out for?

Each policy lists the conditions it covers and the definition each claim must meet. Most policies include cancer, heart attack and stroke, which account for many claims. Many also cover conditions such as multiple sclerosis, kidney failure, major organ transplant and some types of heart surgery.

The definitions matter more than the number of conditions listed. Some conditions only qualify when they reach a certain severity, and some early-stage cancers may not meet the full definition. Some policies pay a smaller partial amount for less severe conditions while keeping the main cover in place.

How does a claim work?

You can claim after a diagnosis that meets the policy definition. Many policies require you to survive for a short period after diagnosis, often 10 or 14 days, before the benefit is paid. The insurer will review medical evidence from your doctors. Accurate answers on the original application are important, because undisclosed medical history can affect a claim.

Level or decreasing cover?

Level cover pays the same amount whenever a valid claim is made during the term. Decreasing cover reduces over time, broadly in line with a repayment mortgage, and usually costs less. Decreasing cover can help clear the mortgage, but the lower payout later in the term may leave little extra for living costs.

Standalone or combined with life insurance?

Critical illness cover can be bought on its own or combined with life insurance. A combined life or earlier critical illness policy pays once, either on diagnosis of a covered illness or on death, whichever happens first, and then ends. Standalone critical illness cover usually costs more overall, but your separate life insurance stays in place after a critical illness claim.

Cover for children

Many adult policies include some children’s critical illness cover at no extra cost, usually a smaller lump sum. Enhanced children’s cover may also be available. See our page on children’s critical illness cover.

Critical illness cover or income protection?

Critical illness cover pays a one-off lump sum for specified conditions. Income protection pays a monthly benefit if you cannot work because of any illness or injury that meets the policy definition, after a deferred period. They do different jobs, and some people choose both. Our income protection guide explains how that cover works.

How much cover do you need?

Start with what the money would need to do. Consider:

• all or part of your mortgage balance;

• a period of lost income for you or a partner who takes time off to care for you;

• costs such as home adaptations, travel to treatment or extra childcare;

• any cover already provided through your employer.

What affects the cost?

Premiums depend on your age, health, family medical history, smoking status, the amount of cover, the term and whether premiums are guaranteed or reviewable. Critical illness cover usually costs more than life insurance for the same amount because a claim is more likely during the term.

Talk to PMS Mortgages

We can review critical illness cover alongside your mortgage and other protection, so the policies work together. PMS Mortgages advises clients in Croydon, Purley, Surrey and across the UK. Read more about critical illness cover advice, compare it with life insurance for a mortgage, or book a consultation.

Further reading

MoneyHelper: what is critical illness cover?

General information, not a personal recommendation. Cover is subject to the insurer’s underwriting, terms, conditions and exclusions. PMS Mortgages will explain any advice fee before you proceed.

Tax treatment depends on your circumstances and may change. We do not provide tax advice, and tax advice is not regulated by the Financial Conduct Authority.