What is critical illness cover and how does it work?

What is critical illness cover?

Critical illness cover is insurance that pays a cash sum if you meet the written conditions for a covered illness or medical procedure. The usual personal policy pays one lump sum, meaning one payment rather than a monthly income. Being seriously unwell does not, by itself, establish a claim.

Think of the cover as an agreement made before an illness happens. It records who is covered, how long the agreement runs, the amount payable and the medical circumstances that trigger payment. The insurer then checks a claim against that agreement.

To make that concrete, follow Sam, a fictional secondary school teacher in Leeds. Sam takes out a personal policy that pays a fixed lump sum and runs for 20 years. This example assumes Sam owns the policy, it covers Sam alone and no trust or lender has rights over the payment.

Sam's story illustrates the process rather than a particular product. Other policies have different terms and definitions, and may include extra benefits, meaning payments under other sections of the contract.

The application asks questions before cover starts

An insurer commonly asks about medical history, smoking, work and activities when assessing an application. Underwriting means this assessment of the information before the insurer decides what terms it can offer. It may ask follow-up questions or seek medical evidence.

Sam notices a question about tests and investigations, rather than just diagnosed illnesses. There is an appointment in the diary, so Sam checks what the question asks and gives the requested details. Answering only about confirmed diagnoses would miss the point of that particular question.

The duty is to take reasonable care to answer the insurer's questions correctly. The Financial Ombudsman Service's guidance on application information explains why the clarity of the question and what the insurer would have done with a correct answer both matter.

An exclusion is a written restriction removing particular circumstances from cover. Any individual restriction needs reading alongside the general policy terms, rather than assuming that the published illness list is the complete agreement. A protection specialist can check how an insurer would assess a particular situation.

The start date, amount and term become the agreement

The term is the period for which the policy runs. Sam checks the confirmed start and end dates in the policy schedule, the document recording the cover selected. Submitting an application is not the same as having confirmation that the cover has started.

Sam's example uses level cover, which means the main cover amount stays the same throughout the term. Decreasing cover means that amount falls according to the policy's schedule. The separate guide to how long critical illness cover lasts explains the choice of term.

Regular payments keep the agreement running, subject to its terms. If payments stop, the policy can end, so a missed payment needs checking with the insurer. Finishing the term without a valid claim does not produce a payment simply because the policy has reached its end.

Sam stores the application answers, schedule and policy conditions together. A leaflet can explain a product, but it does not show every personal restriction or selected option. Keeping the actual agreement avoids having to reconstruct those details years later.

A diagnosis has to meet a written definition

A definition is the policy's written test for a condition. It may require a particular diagnosis, medical evidence, degree of severity or procedure. The condition's name on a hospital letter and its name in an insurance list are only the starting point.

The Association of British Insurers, or ABI, publishes minimum standards for policy wording. Its current published Guide to Minimum Standards is dated September 2022 with April 2023 clarifications. It sets model definitions, including those for the three core conditions of cancer, heart attack and stroke.

Those standards do not mean every form of each condition qualifies. Years after cover starts, Sam receives a cancer diagnosis and checks the definition in the existing policy. The claims team needs the relevant specialist evidence to establish if that definition is met.

Sam does not substitute the wording on a website advertising new cover. The relevant documents are those applying to Sam's agreement. For the condition lists and their limits, read what critical illness cover pays out for.

Time off work is a separate question

For an ordinary listed illness claim, payment depends on the policy's medical test rather than the number of teaching days Sam misses. Sam could meet that test while continuing some work. Equally, a long absence would not make an unlisted illness qualify by itself.

This changes how you read a policy. A sick note describes a work situation, but it does not necessarily establish the medical facts required by an illness definition. A claim may need evidence from the treating consultant as well.

Income protection is different insurance that can pay a regular income when illness or injury stops someone working, subject to its own terms. The guide to critical illness cover and income protection explains that distinction. Sam's lump sum policy does not automatically turn into ongoing salary replacement.

Some critical illness policies also include a separate payment for permanent disability, meaning a loss of abilities expected to last for the rest of someone's life. That payment has its own test, rather than covering any illness causing absence.

A survival period is not a payment deadline

A survival period is the time someone must remain alive after the insured event to qualify for a benefit. The event and number of days are set by the policy. Published products differ, so there is no single period that applies to every critical illness claim.

Suppose Sam's policy requires survival for 14 days after the relevant diagnosis. Meeting that condition establishes one part of the claim. It does not mean the insurer must have completed its assessment or transferred the money on day 14.

The claims team still needs enough evidence to assess the definition and any applicable restrictions. The Financial Ombudsman Service's critical illness guidance describes the role of specialist medical evidence in disputes about cover.

Sam keeps a record of what evidence has been requested and what remains outstanding. That separates an unmet policy condition from an assessment still in progress. The detail of timing belongs in when critical illness cover pays out.

An accepted claim releases the agreed lump sum

In this example, the specialist evidence satisfies Sam's policy definition, the survival requirement is met and no applicable exclusion prevents payment. The insurer accepts the claim and pays the agreed main cover amount. That amount comes from the contract, rather than adding up Sam's lost wages or hospital expenses.

Sam uses some money for household bills and keeps some available for travel and childcare. Those are choices in this fictional example, not spending requirements imposed by the cover. The ABI's consumer explanation of critical illness cover gives household costs and mortgage payments as possible uses.

For a personal policy of this kind, the lump sum is normally free of UK income tax. HMRC's Insurance Policyholder Taxation Manual explains the treatment of critical illness lump sums. Wider questions about money retained after payment are covered in critical illness payouts and tax.

What ends after payment depends on the benefit

Sam's full payment ends the critical illness cover in this example. A later diagnosis does not restart it or release another main lump sum. Nor does the payment increase because recovery takes longer than expected.

A partial payment is a smaller benefit for a condition with its own payment rules. Some policies make these payments without ending the main cover. MoneyHelper's critical illness guide explains that smaller payments can also apply to specified children's conditions.

Life insurance alongside critical illness cover also needs checking. Combined or accelerated cover means a critical illness payment uses up some or all of the linked life cover. Separate covers can work differently, as explained in life and critical illness cover.

The useful question for the claims team is which benefit has been paid and exactly what remains afterwards. For Sam, that answer is no remaining critical illness cover under this agreement. A smaller additional benefit under another policy could leave a different result.

Questions people ask

Sources

We checked this guide against these sources. It is general information, not advice.

• Guide to Minimum Standards for Critical Illness Cover, ABISupports definitions, core conditions and the meaning of a survival period.
• Critical illness cover, ABISupports the purpose of the cover, possible uses of a payment and the currently offered standards download.
• What is critical illness cover, MoneyHelperSupports application factors, the main lump sum, smaller benefits and policy endings.
• Critical illness cover complaints guidance, Financial Ombudsman ServiceSupports assessment against the contract and the role of medical evidence.
• Misrepresentation and non-disclosure, Financial Ombudsman ServiceSupports reasonable care when answering application questions and the handling of inaccurate answers.
• Insurance Policyholder Taxation Manual IPTM6010, HMRCSupports the income tax treatment of a critical illness lump sum.