Why you shouldn’t ignore critical illness cover

The last thing anyone wants to think about is getting a critical illness, but it’s more likely than you might think and having insurance cover could be hugely beneficial to you and your family.

LV's Risk Reality Calculator might give you a bit of a scare. By simply putting in your age, gender and retirement age, and that of your partner, it will tell you statistically the chance of certain things happening to either of you before you retire. For instance, for a non-smoking couple in their 30s there is a one in four chance that one of them will develop a serious illness before their retirement age of 67, and a one in ten chance that one of them will die.

Nobody wants to think about such things happening, but when one in two people born after 1960 are expected to get cancer in their lifetime, and Macmillan research shows that 83% of people with cancer face a financial burden of nearly £900 per month on top of their usual household bills, planning for the worst to happen is an important part of financial planning.

History of critical illness cover

Critical illness insurance rose to prominence in the 1980s when medical advances were making it more likely that people would survive cancers, strokes and heart disease, albeit with great disruption to their family and, potentially, an enduring effect on their quality of life.

A critical illness policy pays out a lump sum or ongoing payments when you are diagnosed with a serious illness covered by the policy and in some cases proportionate to the severity of that condition. Originally, policies covered a few broad categories of the most common life-threatening illnesses, but eventually insurers became more particular about exactly what definitions of critical illness they covered, leading to some reputation issues.

“It became a bit of an arms race. You needed to fall into a very specific definition in order to be covered which naturally led to a decline in pay outs,” says Harry Beddoe, Independent Financial Adviser at Ascot Lloyd. “Some people might remember the sad case of Hein Pretorius who had one of his legs amputated after a motorbike accident, but his policy only covered him if he lost two limbs. Stories like this meant critical illness insurers began to gather quite an unfortunate reputation for finding every which way to wiggle out of a claim.”

Lack of awareness

In more recent years the industry has changed for the better, returning to more broad categories of critical illness and more industry standard definitions rather than always being so specific. Some insurers also now offer partial payments when, for example, the severity of a cancer diagnosis is less significant, rather than declining claims for payouts outright because of narrow definitions.

However, general awareness of critical illness cover and its overall importance is low. While figures by the Association of British Insurers show that sales of critical illness policies in 2023 were almost four times higher than a decade ago, the Financial Conduct Authority estimates only 10% of UK adults have critical illness cover. A study by Beagle Street found that 53% of young adults don't even understand what critical illness cover is for and a third have never heard of it. Beddoe attributes this partly to the ‘it won’t happen to me’ mindset.

Harry Beddoe

“It’s that Superman complex that cancers are for other people, they're not for me,” he says. “Critical illness cover is something that people aren't aware of as much as other policies such as life insurance, and those who are aware of it sometimes get a bit scared by the price point. It gets more claims because you're more likely to get a critical illness than you are to die while you’re still in work, so the price is generally higher than life insurance cover.”

“There needs to be a greater education piece about this. One of the things that the industry is doing to make itself a bit more appealing is also to include a child cover option in your premium. As a father of a three-year-old, that's very important to me because I know if anything happened to my daughter my work would go out the window, it’d all be about her.”

Getting it right – and wrong

Worryingly, even those who have bought a critical illness policy might not be appropriately covered. Research by Legal & General for The Mail on Sunday found that more than half of people with some form of personal protection insurance have failed to change it in line with milestones such as buying a home, having children, marriage or divorce. Some policies, for example, pay off your mortgage if you get seriously ill, but if you forget to increase the level of cover when you move house or take on more mortgage debt, you’re at risk of a shortfall. 

Some people also think they are covered for certain things when in fact they are not. Common reasons to be off work such as mental illness and muscular skeletal issues are rarely covered in critical illness policies so always consider taking income protection as well.

“It’s important to talk to your adviser because too many people who have critical illness insurance don't actually understand what critical illnesses are covered in their policy and comparing the cover offered, especially some older policies can be very difficult,” says Beddoe. “The last thing you want is to be paying, say, £87,000 for critical illness cover over a period of 32 years (so a little under £57 per month) only to receive nothing when you actually get a critical illness. It's incredibly emotionally draining at an already very difficult time for both you and your family.”

“You don't need that extra level of stress, which is why it's always so important to go through an adviser when arranging your policy because we're here to help you understand what you're getting yourself into and what should be covered. It might be a case of moving away from the cheaper option because it's not fundamentally going to meet what you need. Sometimes paying just an extra £5 per month could be the difference between a payout and no payout. It's important also not to ignore income protection which is a bit more outcome focused in terms of it paying out when you’re unable to work because of an accident or illness and can complement the protection offered with critical illness cover. Sometimes even better value can be offered by using a menu plan where you can combine life, critical illness and income protection all in the one plan, but perhaps that’s for another article and time.”

If you want to discuss critical illness cover, contact your adviser directly or get in touch. to book a free callback with our Client Services team.