What is Critical Illness insurance?

Published  22 February 2024
   7 min read

Critical Illness cover is a type of insurance that’ll pay you a tax-free cash lump sum if you’re diagnosed with or require surgery for a condition defined in your insurer's policy. 

This type of insurance could help ease the financial burden on you and your loved ones at a difficult time, when you may not be able to work. The money could help you maintain your standard of living while you’re ill and help pay the bills while you’re getting back on your feet. And it might help you pay for private medical care, or to see a consultant who specialises in your condition. It could even help to pay for alterations to your home.

How does it work?

Critical illness cover can be purchased as a standalone insurance policy or it can be combined with life insurance. When you combine them both you have the added protection that your family will receive a cash lump sum if you die during the lifetime of the policy. Remember, that with a combined critical illness and life insurance policy it’ll only pay out once on either death or critical illness, whatever occurs earliest.

You’ll also want to consider whether you want to have the amount of cover stay at the same level for the duration of the policy or increase or decrease each year by a nominated rate. Decreasing policies are often used to provide cover alongside a repayment mortgage.

What illnesses are covered?

It’s important to remember that not all medical illnesses are covered, and you’ll need to meet the definition stated in your provider’s policy before you can receive a payout.

Some insurance companies also offer children’s critical illness cover. While nobody wants to think about their child becoming critically ill, it unfortunately does happen. As well as the emotional stress this puts parents through there are often significant financial concerns too, from changes in daily living costs and loss of earnings due to hospital visits and caring for a sick child.

Children’s critical illness cover works in the same way as adult cover, but there are often additional medical conditions, specific to children from birth or if there has been a complication during pregnancy.

How much cover do I need?

There are a few things to think about when working out how much cover you’ll need:

  • Your monthly essentials like paying for rent or your mortgage
  • How much might be required to pay for any private medical costs or rehabilitation needs
  • A desired amount of coverage for potential home modifications
  • Your current savings and other assets.

You should also think about whether your financial position could change in the future and whether you might have more financial commitments on the horizon.

Ultimately, to ensure that you get the right type of insurance for your requirements you should speak to a financial advisor.

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