1. What is critical illness cover?
Critical illness cover is an insurance policy that pays out a lump sum if you’re diagnosed with a critical illness or condition. The idea is to provide a financial cushion at a difficult time, giving you the support you need while you recover or adjust.
There are a couple of important things to know about critical illness cover. One is that it pays out only for the illnesses or conditions listed and defined in your policy; it wouldn’t pay out for any other illness or if you don’t meet the definition.
The other is that policies come with a core benefit and additional benefits. If you claim the core benefit, you get the full payout and your policy ends; if you claim an additional benefit, you get a proportion of the payout and your policy continues.
2. Do I need critical illness cover?
This depends on whether a critical diagnosis would affect you or anyone else financially. A critical diagnosis often leaves people unable to work for a while, which for many people has financial consequences. Especially if you have other people relying on your income – like a partner or children.
If you’d struggle financially in the wake of a diagnosis, you’d benefit from having this kind of cover in place. It gives you peace of mind that a diagnosis wouldn’t derail your finances. To help make your decision, read about the pros and cons of critical illness cover.
3. How much critical illness cover do I need?
Critical illness cover pays out as a lump sum. How much you need that to be depends on how much financial support you’d need in the wake of a diagnosis – or how much your shortfall would be if you couldn’t work for a long time.
It’s hard to know exactly how much you’d need in this scenario, because it depends on the diagnosis. A common way of doing it is to work out your monthly expenses and decide how long you’d want a cushion for – e.g. 1 or 2 years. You can then multiply your expenses by the length of time to give you an appropriate cover amount. Another way is to make sure your income would be covered for a chosen length of time. So again: multiply your monthly income by a certain number of months.
Ultimately it’s a case of giving yourself a financial cushion you’re comfortable with and balancing that with the cost of cover – because how much you can afford (and are happy) to pay each month to be insured is also a factor. The higher the amount of cover, the higher your monthly premiums will be.
4. What illnesses are covered by critical illness insurance?
Different critical illness policies cover different lists of illnesses and conditions. This is important, because insurers will only pay out if you’re diagnosed with one of the illnesses or conditions specifically listed in your own policy.
Typically critical illness policies cover around 40-60 severe illnesses and 30-50 less severe illnesses. Many will also cover your children at no extra cost, covering them for the same illnesses as adults, and often some child-specific illnesses too.
5. How does children’s critical illness cover work?
Many insurers include children’s cover into critical illness policies for free. If children’s cover is included in your policy, your children will be covered for the same critical diagnoses as you, including things like certain cancers, organ failure, loss of limbs, and loss of hearing or sight. In some policies, they’ll be covered for some child-specific illnesses too – like type 1 diabetes, cerebral palsy, Down’s syndrome, and cystic fibrosis.
Children’s critical illness cover is usually included as an additional benefit on your main policy, which means it would pay out a proportion of your lump sum cover amount if you need to claim, and you’d still be insured afterwards. This is different to claiming the main adult benefit, which pays out the full amount but also ends the policy.
6. When does critical illness cover pay out?
If you make a claim on your critical illness policy, it will pay out if you’ve been diagnosed with one of the illnesses or conditions listed in your policy – so long as you meet the insurer’s definition of it. How it pays out depends on the type of claim you’re making, as follows:
Core benefit claim
You can claim the core benefit if you’re diagnosed with one of the core illnesses listed in your policy. These are usually the most severe diagnoses. If you meet the insurer’s definition, they’ll pay out the full cover amount and your policy will end.
Additional benefit claim
You can claim the additional benefit if you’re diagnosed with one of the additional illnesses listed in your policy. These are usually less severe diagnoses. If you meet the insurer’s definition, they’ll pay out a proportion of your cover amount (usually around 25%) and your policy will continue. You can make more than one additional benefit claim.
Child benefit claim
You can claim the child benefit if your child is diagnosed with one of the core, additional or children’s illnesses listed in your policy. If the diagnosis meets the insurer’s definition, they’ll pay out a proportion of your cover amount (usually around 50%) and your policy will continue. You can make more than one child benefit claim.
7. What’s the difference between critical illness cover and income protection?
Both of these insurance products protect you financially in case of illness – but there’s two main differences between the two. One is how they pay out; the other is what they pay out for.
Critical illness cover pays out as a lump sum if you make a claim. It will pay out if you’re diagnosed with one of the critical illnesses or conditions specified in your policy. It’s designed to give you a financial cushion in the wake of a diagnosis to help you recover or adjust.
Income protection, on the other hand, pays out as a monthly sum if you make a claim. It pays out for any medical reason that leaves you unable to work, not a specified list of critical illnesses. It’s designed to give you ongoing financial support if you lose your income.
8. Should I buy critical illness cover on its own or with life insurance?
You can do either. Many insurers offer combined life insurance and critical illness products, which is why it's common for people to buy them together.
It’s simpler from an admin point of view to have both risks (death and illness) covered with one policy – but bear in mind that a combined policy will only pay out the main benefit once. So if you claimed for one of the main benefit illnesses, you’d no longer be covered in case of death.
At Anorak, we recommend combined cover possible, but often suggest taking out an additional life insurance policy too – to ensure you’ll always be covered in case of both scenarios.
9. Should I buy standard or upgraded critical illness cover?
Many insurers offer ‘standard’ and ‘upgraded’ versions of their critical illness policies. The main way to differentiate between the two is by the number of illnesses and conditions covered. However, it’s worth looking at different insurer’s policies side-by-side, because the way they categorise illnesses is different. So one insurer’s ‘upgraded’ policy may actually be similar to another insurer’s ‘standard’ policy.
At Anorak, we’ve unpacked all of this into our online service, so you know you are comparing like-for-like. This makes it easier to choose the best value critical illness policy with the most relevant illnesses for your profile.
10. Is critical illness cover worth it?
As with any insurance you buy, it’s the peace of mind that makes it worth it. Critical illness cover can provide a financial lifeline at a difficult time.
If you or the people you love would be financially affected by a serious diagnosis in your household, having cover in place gives you peace of mind that you’ve got a safety net if it happens to you. This means you could have time off work to recover or adjust without having to worry about money.