A serious diagnosis brings costs as well as worry. Critical illness cover is designed to pay a lump sum when one happens. The detail of when it pays is where most disappointment comes from.
What it is
Critical illness cover pays a tax-free lump sum if you are diagnosed with a condition listed in the policy and the condition meets the policy's definition. The payment comes while you are alive. You can spend it on anything: a mortgage, treatment, adapting your home, time off work.
It is a different thing from life insurance, which pays on death. Many insurers sell them together, and a combined policy pays once, on whichever happens first.
What it covers
Every policy has a list of conditions. Common examples are cancer, heart attack, stroke and multiple sclerosis. The number varies a great deal. MoneyHelper says the broadest policies cover 50 conditions or more, and others are much more limited. A longer list isn't automatically a better policy.
What matters more is the definition of each condition. An insurer pays when you meet its wording, not when your doctor says the word. A cancer that is early-stage or low-risk, for instance, may pay a partial amount, or nothing, depending on the policy.
The survival period
Most policies pay only if you survive for a short time after diagnosis. Sources give anything from 10 to 30 days, so check the figure in your own policy. If you die inside that period, the critical illness claim doesn't pay. A policy that includes life cover would still pay on death.
Where it falls short
It pays once, and the policy then ends. If you recover and later develop a different condition, you may have no cover left. It also doesn't replace your income month to month. A lump sum is quick to spend, which is why people consider income protection alongside it.
Your medical history is the other trap. The application asks about it. If you leave something out, even by accident, the insurer may refuse a claim later. Answer every question in full.
What to check before you buy
Read the list of conditions and the definition of each one. Check whether partial payments exist for less severe illnesses, and what the survival period is. Find out whether children are covered, and whether a claim ends the policy.
Compare these in the policy documents, not the brochure.
Cost and term
Premiums depend on age, health, smoking status and the amount of cover. You choose a term, such as until you retire or until the children are grown up. Cover bought younger and healthier costs less. A policy lasts only for its term, so a longer one costs more.
Putting it with other cover
Many families hold a mix: life cover for a mortgage and dependants, income protection for lost earnings, and critical illness for a lump sum to meet the shock costs. A policy can be written in trust so the money reaches the right people, as our guide to life insurance in trust explains. A policy you take out for yourself doesn't need a trust, because you receive the payout.
Richard goes through what you hold and what your family would need. Start with our Family Protection page.