Diagnosed with something serious. Cash in the bank.

What it does, and what it does not

Critical illness cover pays a tax-free lump sum if you are diagnosed with one of the conditions listed in the policy, and the diagnosis meets that policy's definition.

It is not "cover for being ill". That is the misunderstanding that causes most of the disappointment in this product, and it usually surfaces at the worst possible time.

What a payout is for is breathing room: clearing or reducing the mortgage, adapting a house, paying for help at home, or simply replacing an income for long enough to recover properly rather than going back to work in March because the money ran out.

Definitions matter more than price

Every insurer publishes a list of covered conditions with a definition attached to each. The lists overlap but they are not identical, and the definitions are where the real differences sit.

Two policies can both say they cover a condition while setting a different threshold for when a claim is payable. One may require a specific severity, a particular test result, or permanent symptoms after a set period.

So comparing critical illness cover on price alone is a bit like buying a car on the colour. The cheapest policy may be cheapest because it covers less, or defines its conditions more tightly.

This is the part of the job I spend the most time on, and it is dull work right up until the moment somebody claims.

Severity-based and partial payments

Many modern policies pay a reduced amount for less severe conditions, sometimes called partial or additional payments, rather than only paying in full or not at all.

That can be genuinely useful, because plenty of serious diagnoses are caught early these days. It also means two policies can look identical on the headline figure while behaving very differently in practice.

Worth asking: what proportion is paid, for which conditions, and does a partial payment reduce the main cover.

Children's cover

Most policies include some cover for children as standard, which pays out if a child is diagnosed with a qualifying condition.

The amounts, the conditions covered and the ages included vary between insurers. It is not usually the reason to choose a policy, and it is worth checking rather than assuming, because this is an area where insurers differ a lot.

How much, and how long

The mortgage balance is the usual starting point. Then think about what would actually happen:

• How long could the household manage on one income, or none?
• What would stop, and what would carry on?
• What would start? Travel to hospital, help at home, childcare, adaptations.
• What is already in place? Some employers provide cover, and it usually ends with the job.

On term, running it to the end of the mortgage is common. Running it to retirement is also reasonable, since the risk does not politely stop when the house is paid off.

Critical illness or income protection?

They solve different problems, and plenty of households need both.

Critical illness cover pays a lump sum for a listed condition that meets the definition. It pays whether or not you can work.

Income protection replaces part of your monthly income when you cannot work through illness or injury, whatever the cause, and keeps paying while you remain unable to work, subject to the policy terms.

Put another way: critical illness answers "something serious has happened and we need money now". Income protection answers "my income has stopped and the bills have not". If you can only afford one, the honest answer depends on your circumstances, which is a conversation rather than a web page. More on income protection, and for company directors, executive income protection.

Applying honestly

You will be asked about your health, your family's medical history, your job and your habits. Answer it all, including things you think are irrelevant and things you would rather not mention.

An insurer can decline a claim, or pay only part of it, where something was not disclosed. The person on the receiving end of that conversation is you or your family, at the point you most need the money.

Existing conditions do not automatically rule you out. They may mean a higher premium, an exclusion, or a different insurer whose underwriting takes a different view. Declaring something is almost always better than discovering it matters later.

Where this sits with your other cover

Critical illness cover can be bought on its own, or combined with life cover in a single policy, which is usually cheaper but shares one sum assured between both events. See life and critical illness cover for how that works, and life insurance for cover on death alone.