Milestone Life

What is critical illness cover?

Critical illness cover is designed to pay out a fixed amount of money if you’re diagnosed with one or more illnesses or conditions on the insurer’s list.

This money could be used to support your family if you’re unable to work, pay for specialist medical care or simply spend as you see fit.

Critical illness cover is usually purchased alongside life insurance, where the policy either pays out on diagnosis of a critical illness or upon death (whichever should occur first).

The main features of critical illness cover are:

  • It pays out if you you’re diagnosed with an illness on the insurer’s list to the specified severity, progression or conditions
  • It will also pay out if you require treatment or an operation as defined by the insurer
  • It’s often purchased alongside life insurance where the policy will pay out on diagnosis of a specified critical illness or upon death
  • Some insurers require you to survive for a period of time following diagnosis before the policy pays out
  • The most common conditions covered are heart attack, stroke, multiple sclerosis and cancer. Other conditions covered can vary considerably by insurer
  • It can be considerably more expensive than buying standalone life insurance
  • Children’s critical illness cover is often included

How does it work?

You choose how much cover you would like to pay out if you’re diagnosed with a critical illness. This is known as the ‘sum assured’. You also choose how long you’d like to be covered for. This is referred to as the ‘term’ of the policy.

The amount you pay to the insurer each month for your cover is largely determined by the sum assured, the term of the policy as well as your age, health and lifestyle (including whether or not you smoke).

If you stop paying your monthly premiums, your cover will stop and you won’t receive any money back.

Which illnesses are covered?

Each insurer has a list of critical illnesses, treatments or operations for which the policy will pay out. This list varies for each insurer however the majority cover cancer, heart attack, stroke and multiple sclerosis.

When deciding which critical illness cover is best for you, it’s important to compare:

  • The number of conditions covered
  • The likelihood of being diagnosed with illnesses on the list
  • The specified severity of illness or definition of treatment required for which the policy will pay out.

Whilst some insurers may cover a larger list of conditions, the chances of being diagnosed with some illnesses may be very small.

What’s the definition of a critical illness?

As well as listing the illnesses and conditions covered, critical illness policies include a definition to describe the severity or level of progression for each illness. These definitions must be met through professional diagnosis before the cover will pay out.

For example, critical illness policies covering breast cancer may vary as to the stage of progression for which the policy will pay out.

The Association of British insurers (ABI) provide insurers with recommended definitions for the illnesses and severity of diagnosis for which critical illness cover will pay out. They also provide guidance to insurers as to what conditions and treatments should be covered.

  • ABI Definitions

    The cover meets the definition for the illness as recommended by the ABI

  • ABI+ Definitions

    The definition of severity at which cover will pay out is at a less advanced stage or less severe than stated in the ABI definition.

When illnesses covered by a critical illness policy meet or exceed ABI definitions, this can provide some confidence that the insurer will pay out at a severity of diagnosis that the ABI has determined to be fair to the consumer.

Do I need it?

Critical illness cover can give you and your family peace of mind knowing that you’ll be financially supported should you become critically ill.

Critical illness cover can pay out whilst you’re still alive, allowing you to spend the money as you wish.

Although expensive compared to life insurance, your chances of being diagnosed with a critical illness or needing specialist medical care are often much higher than dying within the term of a life insurance policy.

Critical Illness Cover vs. Terminal illness Cover

All term life insurance policies also include terminal illness cover. With terminal illness cover, the sum assured will be paid should the policy holder be diagnosed with a terminal illness and given 12 months or less to live by a doctor.

The following table shows a comparison of features of critical illness and terminal illness cover.

Terminal Illness Cover

Pays out on diagnosis of a terminal illness where the policy holder has been given a prognosis of 12 months or less to live by a GP.

Always included as a feature of term life insurance policies. No extra cost associated.

It doesn’t matter what condition or illness you’re diagnosed with. Your cover will pay out so long as you’re diagnosed with any illness resulting in a prognosis of 12 months or less to live (providing this isn’t within the last 12 months of the policy term).

Critical Illness Cover

Pays out on diagnosis of a critical illness on the insurer’s list.

Optional when purchasing life insurance but at an additional cost.

Many of the illnesses and conditions covered aren’t considered terminal or untreatable.

When you buy critical illness cover, as well as covering the policy holder, insurers will often include at least some cover for your children at no extra cost.Children’s critical illness cover

This means should your children be diagnosed with an illness on the list, the insurer will pay out a proportion of the sum assured, usually around 50% up to a maximum of £25,000.

A claim on children’s critical illness cover won’t affect your own cover. It’s important to check the conditions covered under children’s critical illness cover, as these may differ from those which apply to the main policy holder.