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Serious and critical illness cover explained

Who should consider critical illness cover, and how much cover do you need? Find out everything you need to know in this guide.
Serious and critical illness cover is an insurance policy that pays a lump sum to you if you become seriously ill and can’t work. You can use the money to cover any outgoings while you take the time to recover.

Most policy providers will cover illnesses like cancer, heart attacks and strokes. There may also be an option to add-on specific illnesses to your policy. 

Most providers call this insurance policy critical illness cover. Vitality’s version is similar, but is called serious illness cover.

Should I consider serious and critical illness insurance?

Even if you are in good health, illness can happen at any time. Critical illness cover makes sure you’re financially supported. To decide if it's right for you, have a think about:

Your savings
If you became seriously ill and couldn't work, would you have enough savings to cover your outgoings? You may not be able to support yourself or your family for the length of time you need to recover.  

If you’re married or have a partner
If you have a partner and you became ill, without your salary, could you cover your shared outgoings? 

If you have a family or dependents
If your family rely on your salary, having critical illness cover would mean they’d be able to stay financially secure.

How much serious and critical illness insurance cover do I need? 

There are a few things to consider when working out how much cover you might need:

1. Understand how much income you would need
If you became ill and were without a salary, how much would you or your family need? The amount will vary depending on your individual circumstances. 

2. What are your current bills and outgoings?
Consider how much you spend on household bills, mortgage repayments, and other debts. How much do these add up to each month?

3. Consider the monthly premiums you’ll pay for a policy
Include these as part of your monthly outgoings. The monthly premiums you pay will depend on the total amount you're covered for. Other factors are also considered, like your age, health, salary, and lifestyle choices.

4. Estimate what your extra expenses would be 
This could be anything from transport, childcare and medication. Take this amount and subtract any income, for example your partner's salary. 

5. Consider your savings
Deduct any savings you could use from the payout amount you'd need.

6. Calculate potential medical bills
Calculate how much you may expect to pay in medical bills, like procedures and medication. If you have health insurance, you may not need to take this into account.

7. Understand state benefits
There are some instances where you may be able to claim state benefits. To find out more, go to the government website.

8. How long do you want to be covered for?
The duration you'll be covered for is up to you and depends which life stage you're at. For example, the younger you are, the longer you'd want the term to be. 

When does serious and critical illness cover pay out?

Critical illness insurance pays out if the policyholder suffers from an illness listed in their policy during the policy term.

The difference between serious and critical illness cover and other insurance policies

What’s the difference between life insurance and serious and critical illness cover?

Life insurance is there to help protect your loved ones when you're gone. It pays out to your family when you pass away, or to you if you become terminally ill.

Serious and critical illness insurance covers you during your lifetime. It pays out a lump sum to you if you’re diagnosed with a serious illness that's covered under the policy. The illness may have a significant impact on your life, but it isn't life threatening.

What’s the difference between income protection and serious and critical illness cover? 

Income protection insurance often includes a wider range of illnesses covered. Rather than a one-off payout, it pays out a monthly salary. Income protection can also cover you for a longer period if you're unable to work. Because of this, income protection insurance is usually more expensive.

Critical illness and tax

Are serious and critical illness insurance premiums tax-deductible?

The lump sum you receive from a critical illness claim isn’t classed as income, so it's tax-free. 

Are critical illness benefits taxable?

If you make a serious and critical illness cover claim, but pass away before you receive the payout, the money will become part of your estate.

If you receive a serious illness cover payout before you pass away, the money belongs to you. It becomes part of the assets you own. If you pass away and haven’t spent the full payout, your estate will have increased in value.

If your estate is worth over £325,000, your family will be charged inheritance tax on the payout. This is usually 40% of your estate.

Find out more about our serious illness cover here, or get a quote.

Relevant guides and articles

  • Term life insurance

    Term life insurance pays out to your loved ones if you pass away within the policy term. Learn about the different types of term life insurance in our guide. 

  • Mortgage protection insurance

    Mortgage protection is a type of life insurance designed to pay off your mortgage. Read our guide to help decide if it's a good option for you and your family.

  • Income protection insurance 

    Income protection insurance pays out a tax-free monthly income if you can't work. Find out all the key information about income protection in our guide.