Is critical illness insurance worth it?

This content was reviewed and approved by Geoff Eaton and Fiona Robson.

How does life with critical illness insurance work? 

Life insurance with critical illness gives you or your beneficiaries a one-off, sum if you’re diagnosed with a specified critical illness or injury, or pass away during the term of the policy. 

At the time of writing, payouts are made tax-free. Any references to taxation are based on our understanding of current legislation and HM Revenue & Customs practice which can change. 

To make a successful claim, your critical illness must be one of the conditions covered by your policy. You’ll need to make regular monthly payments for the amount of cover you buy. 

With LV= you can choose from two different types of critical illness insurance: level cover and decreasing cover. (Other types of cover may be available with other providers, or if purchased through a financial adviser) 

1. Critical illness insurance: level cover 

With level life with critical illness insurance, your amount of cover and premiums are fixed for the duration of the policy. 

You or your beneficiaries will receive a lump sum if you’re diagnosed with a listed critical illness or die during the term of the policy. It’s up to you to decide the amount of cover you need and for how long (this is usually 5-50 years, ending before the age of 80). 

Level cover life with critical illness insurance is typically more expensive than decreasing cover, because the cover amount you choose when your policy starts doesn’t change and remains the same if you need to claim in the first few years, or later on during the term of your policy. However, because the cover amount is fixed, it won’t keep up with how the costs of things go up over time (known as inflation) so you’ll be able to buy less with it in the future.

2. Critical illness insurance: decreasing cover 

With decreasing critical illness insurance, the amount you’re covered for reduces over time. This type of product aims to cover the decreasing amount of money you owe on a capital and interest repayment mortgage over time. 

Your premiums will be fixed during the policy and decreasing cover is usually cheaper than level cover, because the cover decreases over the length of your policy. However, like level cover you decide the amount of cover you need and the length of the policy, which is usually the length of your mortgage term, between 5 and 50 years, and ending before your 80th birthday.

Decreasing cover may not be suitable if you’re making extra mortgage payments or taking payment holidays during the term of the policy, and is not designed to cover an interest-only mortgage. It’s also important to note the payout from decreasing cover could be more or less than the outstanding balance on your mortgage if you need to claim.

What are the pros and cons of critical illness insurance?

Have you considered the financial impact a critical illness would have on yourself and/or family if you were to suffer a life-changing illness or injury?

Below, we highlight some of the benefits of taking out critical illness cover along with the pros and cons.

Benefits of life with critical illness insurance 

• Receive a payout: You’ll receive a lump sum LV= paid out 90% of all critical illness claims in 2024. 
• Cover your mortgage and debt: A payout could help pay off any loans or outstanding mortgage debt. 
• Help Fund living costs: Provide a short-term safety net to help meet living expenses such as household bills, education fees, or childcare costs. 
• Make necessary changes to your home: Use a payout to adapt your property to support and aid living with a critical illness or serious condition. 
• Cover included for your children: Many policies include children’s critical illness cover for an additional monthly cost (but make sure to check with your provider). With LV= this covers children from birth until their 23rd birthday and includes 10 additional child-specific illnesses.
• Enhanced payments: Some policies payout an additional 50% on top of your amount of cover, if your claim is as a direct result of an accident. LV= critical illness insurance offers these enhanced claim payments for 9 conditions, up to a maximum of £200,000 (on top of your cover).  
• Less severe payments: Less severe illnesses and conditions are sometimes covered by critical illness insurance. LV= pays up to £30,000 for two less severe conditions and if payment is made for an extra condition. 

Drawbacks of critical illness insurance 

• Your illness may not be covered: While major conditions like cancer, heart attack and stroke are typically covered, others aren’t. Therefore, it’s always important to check these details before buying critical illness cover. 
• Some pre-existing conditions aren’t covered: For example, if you’ve been treated for cancer, you may not be able to get cover for the same type of cancer or other cancers. 
• Illness severity is considered: The severity of an illness may affect the amount of payout you receive.
• You may have to pay higher premiums: You may have to pay more for cover if you have a pre-existing condition. Also, cover costs more the older you are and is also based on other factors such as health and smoker status. 
• No cash value: Payout only occurs if you’re diagnosed with a critical illness during the lifetime of the policy. If you cancel the policy early or once the policy reaches the end of its term, you get nothing back. 

Is critical illness insurance right for you? 

Only you can decide if you need critical illness cover for you and your dependents, and it all depends on your personal circumstances.

Becoming critically ill or injured isn’t something we often think about, especially in our younger years. However, what would the financial impact be on yourself and your loved ones if you were unable to work and out of employment for an extended period? 

In summary, the key considerations to take into account are:

• Your income: It can take time to recover from a critical illness or make life-changing adjustments. How will this impact your income and those who depend on your salary? 
• Your savings: Can your savings supplement your loss of income if you were to suffer a critical illness or injury?
• Your outgoings: If your mortgage is paid in full, your children have left home, or you have no dependents, you may have enough existing funds and savings to financially cope with a critical illness. However, if you have dependents who rely on your income, critical illness cover could provide a vital safety net. 
• Your employment benefits: If your employer provides long-term sickness benefits for critical illness or injury, you may not need extra cover to provide that short-term safety net to help meet living expenses. 
• Unexpected medical needs: A critical illness lump sum can help if you need money to adapt your home or pay for medical treatment not available on the NHS. 

Are you considering critical illness insurance?

LV= offers critical illness cover for UK residents aged 17 to 64. You’ll also need to buy life insurance with LV= to take advantage of our critical illness cover. It takes just 60 seconds to receive a no-obligation life and critical illness quote. Alternatively, contact us today to discuss your policy.