What is critical illness insurance and do I need it?

While it’s not something anyone wants to think about, being struck by a critical illness or disability can have detrimental implications for your finances as well as your health.

This article explores what critical illness insurance is and whether it's worth taking it out.

If you are diagnosed with a critical illness or disability, you may need financial support to help you with the costs you might face.

While moving to a more suitable home might be necessary, you could also need help with making your current home better equipped for someone with a critical illness or disability – like installing wheelchair access.   

A critical illness insurance policy could be the best way of taking back control of your financial situation.

No one should be left unsupported when they are diagnosed with a critical illness or disability, and insurance can help you prevent that from happening.

What is critical illness insurance and how does it work? 

Critical illness insurance offers a policy that can protect you financially if you become critically ill.

These policies can vary between the illnesses and disabilities that warrant a payout, but if eligible you will receive a tax-free lump sum that can be used however you deem necessary.

It may help you pay for monthly expenses, cover your loss of income if you are unable to work, or cover health-related costs.  

If you become critically ill, then you may face fees to pay for care or other health expenses, while also seeing a reduction in your income if you need to stop working.

Critical illness insurance makes sure that you aren’t left out of pocket should the worst happen. 

What does critical illness insurance cover? 

When signing up for critical illness insurance, it’s important for you to recognise what is and isn’t covered in the policy.

Exactly what type of illness or disability is and isn’t covered can differ between insurers and policies.

Some only cover a limited number, while more comprehensive policies pay out for 50 or more illnesses or disabilities.

These can include:  

• Stroke 
• Heart attack 
• Parkinson’s disease
• Alzheimer’s disease 
• Types and stages of cancer
• Multiple sclerosis 

• Major organ transplant 

In addition to the conditions they list, most policies also include permanent disabilities as a result of injury or illness.  

It's important to note that some conditions are often excluded from policies.

Common ones include broken bones, hypertension (high blood pressure) and non-invasive cancers.  

How much does critical illness insurance cost?  

It’s difficult to put a sum on the cost of critical illness insurance. The range of policies that you can pay for are very broad, and it can also be dependent on things like your gender, age, job and medical history.

You can often add critical illness insurance to a life insurance policy, whereby a single payment will be made in case of death or the diagnosis of a critical illness.

According to internal data from Reassured, the average monthly cost of a life insurance policy with critical illness cover in the UK is £34.52 as of the end of 2023.

Cover can start from just £10 a month for younger people, those who have a good health history, and have a low-risk occupation paying lower premiums on average. 

Do I need critical illness insurance – and should I get it?  

The reason that critical illness insurance gets more expensive as you get older is that due to the increased risk of diagnosis. 

You may already have other means of financial support for when you fall ill, such as large sums in savings and investments.

However, dipping into this pot instead of taking out a critical illness policy could leave you with less money to spend in later life - an issue that can be compounded by the costs necessary to support you during critical illness or disability.

If you have a mortgage, it's worth considering taking out a critical illness policy to cover your outstanding borrowings.

If you're diagnosed with a serious illness covered under the policy, the loan may be cleared.

It’s important to bear in mind that critical illness insurance is another outgoing expense.

You need to weigh up whether you think you might genuinely need it or will be able to rely on your savings should the worst happen and you fall critically ill.

How much critical illness insurance cover do I need?  

Everyone’s financial situation is different, which is why critical illness insurance often offers a bespoke payout based on how much money you might need if you fall critically ill.

When applying for a quote, you need to have an idea of the amount you would need. This should be calculated by considering the following: 

• Household bills and rent or mortgage: The cost of your living situation should include how much is left to pay on your mortgage or your monthly rent, as well as monthly bills including energy and council tax 
• Debt: If you are in the process of paying off debt – whether a loan for a car or a credit card payment for a holiday – you need to factor this into your outgoings 
• Childcare or family commitments: Whether you are already paying for childcare or may need to if you fall ill, this is something you need to factor in. Plus, there may be additional expenditures that you provide to your family that will need to be accounted for, like school uniform 
• Medical expenses: You may need to add a wheelchair ramp to your home or arrange regular transport to a hospital if you become critically ill. Both of these will cost you. 

To receive help with making this calculation, you can seek expert financial advice with Unbiased.

Financial advisers are able to efficiently calculate just how much cover you might need.  

How to get critical illness insurance 

There are a wide variety of considerations surrounding critical illness insurance.

Should you get it? How much should you get? How much will it cost? It is an inherently complicated product that needs a lot of thought.  

Many insurance providers offer critical illness insurance, often as part of a wider life insurance policy.

You can get quotes online and weigh up each of them using comparison sites.

It’s worth shopping around to see where you can get the best deal, and importantly, which policy is best suited to your lifestyle.  

Purchasing critical illness insurance is a big decision, and expert input from a professional can help you make the right call.

Get expert financial advice

Critical illness insurance can help to bridge financial gaps and ensure that you meet your financial obligations should you be diagnosed with a specific illness or disability covered by your policy.

This financial support can not only help you to make necessary adjustments to your home, but also to cover essential expenses like household bills, rent and mortgage payments, and family and medical expenses should you find your income impacted by your situation.

Let us connect you with a qualified insurance broker or expert adviser who can help you identify the best critical illness insurance policies for you and your family’s needs.

If you found this article useful, you might also find our article on the difference between critical illness cover and income protection insurance informative, too.