Being diagnosed with a critical illness or condition is always going to be a tough one to think about, but it’s one of those things we shouldn’t shy away from. Especially as the chances of an unfortunate diagnosis are much higher, for people of working age, than dying – and the financial ramifications can be more significant than you’d expect. This is why critical illness cover is an important kind of protection to have, if you can afford it.

In this Macmillan research report – Cancer’s Hidden Price Tag: Revealing the costs behind the illnesses – it was found that four in five people end up £570 a month worse-off after being diagnosed with cancer, as household income goes down and outgoings go up. It’s working people under the age of 60 who are most likely to face financial hardship after a diagnosis because they tend to already have higher expenses, thanks to things like mortgages and dependent children.

This is where critical illness cover can help, making sure a diagnosis won’t have too significant or long-lasting a financial impact on you and the people in your household. But working out how much you need isn’t always easy – plus it depends on how protected you want to be or, conversely, how much risk you’re willing to live with. Being able to afford the monthly premiums plays a part too.

What’s critical illness insurance for?

Critical illness cover is designed to provide a financial cushion if you’re diagnosed with a critical illness or condition. Many insurers offer this product because it’s well-known that critical diagnoses can often have a significant financial impact on households. Potential reasons being:

  • You need time off work, for physical or mental health reasons
  • Another breadwinner needs time off to support your recovery
  • Home alterations are needed as a result of your illness/condition
  • Unexpected medical costs, travel expenses, or needing to pay for care

How to work out: if you need critical illness cover

Since a critical diagnosis can bring with it unexpected financial consequences, whether or not you need it depends on your personal circumstances. Namely: what financial commitments you have, whether or not anyone else depends on you having an income, and how significant (or catastrophic) the financial impact of a diagnosis could be for you. There’s a few things you can think about to help make your decision:

  • How would being unable to work affect you financially? Would you and your household be able to keep up with the cost of life?
  • Do you have a partner or children who rely on you financially?
  • If you were unable to work because of a critical illness, are there any expenses you could temporarily cut back on to alleviate financial pressure?
  • Do you have any savings or other assets you could fall back on to support yourself financially during treatment and recovery? And would you want to use them?
  • Do you already have critical illness cover through your employer? Is it sufficient? And if you were to change jobs, would you still want to be covered?
  • How do you think you’d react to a critical illness diagnosis? Even if you could keep working, would you want to take some time off for yourself, or to spend with loved ones?

How to work out: how much critical illness cover you need

How much critical illness cover you need depends on your circumstances and the potential impact of a serious diagnosis on your finances.

A common way of choosing how much critical illness cover to buy is: calculate your household’s monthly expenses and what the shortfall would be if you were unable to work, then multiply that by the amount of time you’d want to be supported for if you were critically ill (e.g. a number of months or years).

Another way is simply to cover your income (assuming it’d be temporarily lost if you became ill) – so again: multiply your income by an amount of time. Either of these methods would give you the lump sum amount you want to cover.

Obviously there are some unknowns when trying to work this out – like what the diagnosis could be and what costs it could bring with it – but there are also lots of knowns which can help you make a calculated decision. These include:

  • Your monthly outgoings now, including essentials like rent/mortgage, bills, and food
  • Your monthly outgoings in the future, as far as you can estimate – e.g. do you plan to pay university fees for your children? Or do you have debts that will be paid off soon?
  • How much you want to cover the potential costs associated with treatment and recovery, in case you became critically ill
  • How much you want to cover the cost of potential home alterations needed after being diagnosed with a critical condition
  • How much you have in savings or other assets that you could use to offset your need for critical illness cover

With any kind of insurance, it’s also worth bearing in mind that your needs might change over time – they could go up, down, or stay the same. What you’d need to cover in terms of monthly expenses if you claimed in 5 years’ time, for example, might be different to what you’d need if you claimed in 20 years’ time. This all needs factoring in when choosing what kind of cover to go for.

Anorak tip: We usually recommend making sure you buy a level of cover that would support you if you couldn't work – but how long you'd want that protection for is ultimately up to you. Essentially it’s about weighing up the cost of being covered with how much risk you’re happy to live with.

The right amount of cover for you

As you can see, there's lots to think about when working out whether you need cover in the first place – and, if you do, what amount of critical illness cover is the right amount for you. Working all of this out by yourself can be tricky. Often, you just need someone to bounce ideas off.

This is why Anorak exists. We're an independent online broker for critical illness cover – which means we're here to help you make the right decisions when protecting yourself and your family in case of illness. When you use our service online or over the phone, you get:

  • Free, independent, regulated advice about exactly what you need
  • Help choosing the right policy and insurer for you from the whole market
  • Peace of mind that you're doing the right thing when buying cover
Let's work out how much critical illness cover you need. First, what's your age bracket?
18-24
25-34
35-44
45+
Is getting critical illness cover worth it?
Critical illness cover is worth it if you think you’d struggle with the financial consequences of getting seriously ill. Becoming seriously ill can have a big financial impact on the household, especially if a breadwinner needs to take time off work. Critical illness cover provides financial peace of mind.
Is it better to take out critical illness cover or health insurance?
Critical illness cover and health insurance are two different types of insurance. Critical illness cover pays out if you’re diagnosed with a serious illness, helping you cope financially as you recover. Health insurance (or ‘private medical insurance’) covers you for medical treatment in specified places, often used to supplement the medical service you can access via the NHS. It’s up to you which scenario you’d prefer to be insured for, but it’s important to be clear about what each kind of insurance offers you before making your decision.
What is the average of critical illness claims paid out?
Over 90% of critical illness claims are paid out on average across the market. A critical illness policy will pay out immediately when you’re diagnosed with one of the illnesses or conditions as defined in your policy.
What is not covered by critical illness insurance?
Critical illness cover only covers you for the illnesses or conditions specified in your policy – so you won’t be covered if you’re diagnosed with something else. Terminal illness won’t be covered by a standalone critical illness policy, but might be by a combined policy; death won’t be covered by a standalone critical illness policy, but will be by a combined policy.

This post is intended for informative purposes only and does not constitute advice.