When you buy any insurance product, you’re paying to protect yourself against the risk of something happening to you in the future. In the case of critical illness cover, it’s the risk of being diagnosed with a critical illness or condition – and the financial consequences that can come along with that, often unexpectedly.

Again, as with any insurance, you might only say that your critical illness cover was ‘worth it’ if the worst happens: you end up needing it. But for many people, the peace of mind it provides to be covered – just in case – also makes it worth having.

None of us can know if, when, or how likely it is that we’ll be diagnosed with a critical illness in the future. But for someone of working age, the fact is: you’re far more likely to be diagnosed with a critical illness than you are to die (though the financial consequences of one may be greater than the other). Deciding whether or not to buy critical illness cover is often a case of weighing up the cost of being covered vs. the risk of not being covered, along with the peace of mind having it brings.

What is critical illness cover and what’s it for?

If you’re thinking about buying critical illness cover, it’s best to start by making sure you’re clear about what it is and what it’s for.

So, what is it? Put simply: it's an insurance policy that pays out a tax-free lump sum if you’re diagnosed with one of the illnesses or conditions listed in your policy.

And what’s it for? The idea is to protect yourself against the financial consequences of a diagnosis, making sure you can keep up with the cost of life if you become critically ill. Since it’s paid out as a lump sum, the money can be used however you need – but essentially it’s designed to help you cover the unexpected: whether that’s continuing to pay the rent, mortgage or bills if you can’t work; covering hospital costs; or making alterations to your home that might be needed as a result of your new condition.

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What’s the risk if I don’t have critical illness cover?

Besides your health, the main risk if you’re diagnosed with a critical illness is financial. This is because a critical diagnosis usually means needing time off work for most people – and therefore loss of income – or someone else needing time off to support you, which could also impact the household financially. The same applies if your child becomes critically ill. A critical diagnosis could also bring with it unexpected medical bills, or other costs associated with your treatment and/or recovery.

Obviously the risk of not having critical illness cover will be different per person, depending on your circumstances – in particular, what financial commitments you have and whether or not anyone else relies on you financially. What you’re diagnosed with and what the potential impact of that diagnosis is will also play a part.

The question is: if part of your household’s income was missing, or you were faced with unexpected costs as a consequence of your diagnosis, would you be able to keep up with the cost of life? The answer to this will tell you whether or not it’s worth getting covered.

Do I buy critical illness cover on its own or with life insurance?

You can do either, but critical illness is most commonly bought alongside life insurance. Since so many insurers offer combined critical illness and life insurance products, it can work out easier, purely from an admin point of view, to have both risks (i.e. the risk of dying and the risk of becoming critically ill) covered with one policy, with one monthly premium to pay.

Combined products often come with better benefits, too. Though if you do opt for a combined product, it’s worth remembering it’ll only pay out once: if you die or if you become critically ill (whichever happens first). This means if you claim for a critical illness, you'll no longer be insured with life insurance in case you die.

What’s Total Permanent Disability (TPD) benefit – and do I need it?

We usually recommend taking out critical illness policies that come with Total Permanent Disability benefit. This benefit means you’d receive your payout for any physical or mental condition that results in total and permanent disability – i.e. one that leaves you unable to work in your current occupation ever again.

Crucially, Total Permanent Disability covers you for conditions that aren't otherwise listed in your policy. Instead, your claim will be assessed based on your inability to work in your current job. So, if your condition left you totally and permanently unable to perform your ‘own occupation’, you’d be eligible to claim your critical illness payout.

Will my critical illness insurer pay out?

If you’re diagnosed with one of the critical illnesses or conditions listed in your policy, then yes: the policy will pay out, so long as you meet the definition of the illness as defined in the policy. And, if your policy has Total Permanent Disability (TPD) benefit, it would also pay out for any condition that leaves you totally, permanently unable to work in your current occupation.

It’s always important to know what is and isn’t covered in your own policy. Typically, critical illness policies cover 40-60 severe illnesses and 30-50 less severe illnesses; and if your policy has child cover, it’ll usually cover the same severe and less severe illnesses for children, as well as a few child-specific illnesses too. The most common conditions covered are certain types of cancer; heart attacks; strokes; organ failure; loss of limbs; loss of hearing/sight; multiple sclerosis; Alzheimer’s disease; and Parkinson’s disease.

This is also a good time to mention the importance of full disclosure. The most common reason for claims not being paid out is what’s called ‘misrepresentation’, which means not being fully accurate or honest with the information you provide during the application process.

Will critical illness cover pay out more than once?

Critical illness policies only pay out the main benefit (i.e. the full lump sum) once if you’re diagnosed with one of your policy’s severe illnesses. After you’ve claimed that, the policy ends and you’re no longer covered.

However, many policies also cover some less severe illnesses and/or child illnesses too. If you need to claim in either of these instances, a proportion of the lump sum is usually paid out, but your policy keeps going – so you can still claim the full lump sum amount if you’re diagnosed with a severe critical illness in the future (so long as it’s within your policy term).

  • Critical illness cover can be extremely worthwhile, especially as people of working age are more likely to suffer from a critical illness or condition than they are to die
  • It helps you cope with the (often significant) financial consequences of a diagnosis, providing peace of mind, especially if you’re a breadwinner
  • It’s paid as a lump sum, giving you the flexibility to use the money however’s needed in your household’s unique circumstances
  • It can make all the difference in how well you’re able to cope with an unfortunate diagnosis by providing a financial cushion
What is critical illness cover?
Critical illness cover is an insurance policy that pays out a tax-free lump sum if you’re diagnosed with one of the illnesses or conditions listed in it. It’s designed to protect you against the financial consequences of becoming seriously ill.
Who needs critical illness cover?
Anyone who’d be financially affected by becoming critically ill, especially if it left you unable to work. In particular, those with financial commitments or dependents. Having this kind of protection in place provides a financial safety net.
What illnesses are covered by critical illness policies?
Each critical illness insurer covers a unique list of illnesses and conditions. This usually includes cancers, heart attacks, strokes, and more. Your policy will only pay out if you’re diagnosed with one of the illnesses listed in it.
Are my children covered by my critical illness insurance?
Most insurers will allow you to include children’s cover in your policy at no extra cost. They’re usually covered for the same illnesses as you, and sometimes some additional child-specific illnesses too.
Will my critical illness cover pay out?
Your critical illness insurance will pay out straight away if you’re diagnosed with one of the illnesses or conditions it covers. It’ll pay out the full lump sum for the core illnesses covered and a proportion of the lump sum for the additional illnesses.

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