Critical Illness Cover Explained

critical illness

Critical Illness cover

Critical Illness Cover Explained

Critical Illness cover is a form of insurance plan which pays out a tax-free lump sum in the event of you being diagnosed with a specified illness or disability during the term of the plan.  Typically the term will run in line with your retirement age, mortgage or any other financial obligation.

Critical Illness cover can help pay off any outstanding debts, pay for medical treatment and aid you in making adjustments to your home that may be required. Additionally, most insurers will offer a children’s benefit at no additional cost where if your child is diagnosed with a critical illness then they too may claim under your policy; although in most cases the payout is limited to a percentage of the total cover.

Typically a policy will pay out once, but some insurers will provide a fractional payout for a less severe diagnosis and continue the plan allowing you to make a further claim for the remainder of the sum assured. The premiums for this type of plan will depend on a variety of factors; such as lifestyle, health and your age.

Some conditions and illness are not covered

Some forms of cancer for example are not included by some insurers whereas others would pay out for a claim. It is therefore important to obtain correct advise and the definitions and the severities at which insurers pay out will differ, a Financial Adviser can tailor an option to suit your needs.  Insurers must abide to a minimum standard set out by the Association of British Insurers when compiling the list of illnesses that they will pay out for.

Many will take out Critical Illness alongside their mortgage life insurance on a decreasing policy basis. This can reduce the overall cost of the cover significantly and is a more secure way of protecting your mortgage covering you for a wider range of scenarios ensuring that you do not fall behind on repayments and fall into further financial difficulty.

Importance of Trusts

This type of plan must be placed into a specific form of Split Trust ensuring you are able to benefit from the Critical Illness proceeds while the life insurance proceeds remain outside of your estate in the event of a payout. This ensures that your hard earned wealth built up over the years doesn’t suddenly have a 40% reduction that is swooped up by the chancellor in penal taxes!


For more help and information about Critical Illness Cover and to speak with one of independent financial advisers please contact us at [email protected] or call 01273 208 813

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The value of investments can fall as well as rise and past performance is not a guide to the future.  The content of this publication is for information only. It does not represent personal advice or a personal recommendation, and should not be interpreted as such. Please do not act upon any part of it without first having consulted an Independent Financial Advisor.