What is Critical Illness insurance and how does it work? 

Critical Illness insurance is a policy designed to provide a lump sum payment to a policy holder if they are diagnosed with one of the illnesses listed in their insurance policy.

It’s important to understand that you would need to meet your chosen providers definition of the Critical Illness to make a claim on the policy.

Not all medical conditions are covered and each provider has a different amount of overall conditions covered within their policy. The ability to claim on a Critical Illness policy is not based on your ability to work, but meeting the criteria set out by the provider as specified on the inception of the policy.

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Insurance providers detail the conditions their Critical Illness policy covers in their ‘Key Features Document’ (KFD). It’s certainly worth reading through your chosen providers policy documents to get an understanding of what you would be covered for and the definition you’d need to meet if you ever need to claim.

Some providers may also pay out a smaller lump sum, known as a partial payment, should you be diagnosed with a critical illness which meets your chosen providers definition. Typically, these partial payments do not impact on your overall sum assured. 

Again, it’s worth taking the time to read through your chosen insurers policy documents to get an understanding of what you are covered for and in what circumstances might the policy pay out.

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How can I purchase a Critical Illness policy through Cavendish Online?

There are three ways you can purchase a Critical Illness policy through Cavendish Online:

Online (via the Cavendish Online website) -

This option is available to anyone with no health disclosures, providing the amount of Critical Illness cover is the same as the amount Life cover (for example, you are unable to quote for a lesser amount of Critical Illness cover alongside your life cover).

To include Critical Illness cover online, you can select it as a ‘policy extra’ once you have received the Life Assurance quotes.

Please note that there are a limited number of Critical Illness policies and providers available online. However, a wider selection are available through our phone-based services which are both 'Whole of market' (please see below for more information).

Click here to get an online quote

Over the phone with Guidance -

If you have a good idea of the policy you’re looking for but would rather go through the process over the telephone then you may wish to speak with our Guidance team. They will provide quick quotes for you and take you through the application process once you’ve decided on the right policy.

Unlike our online route, you are able to have differing amounts of Critical Illness and Life cover when you quote through our Guidance team – though it’s up to you to decide the levels of cover you wish to secure. 

Call our Guidance team now on: 

01392 241 850 (Monday to Friday, 10am - 6.30pm)


Over the phone with Advice –

If you have any medical disclosures, a high risk occupation, hazardous hobbies, or are simply unsure as to which Critical Illness policy is right for you, consider giving our advised team a call. 

They will spend 15 to 20 minutes (sometimes slightly longer if there is lots to discuss) getting to know you and your current situation.

Following this, they will research the market and make recommendations tailored to your specific needs. Our advised team can arrange Life and Critical Illness policies with differing amounts of cover, or even standalone Critical Illness cover if requested.

Call our Advice team now on: 

01392 436 193 (Monday to Friday, 9am - 5.30pm)

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How much does Critical Illness cover cost?

There are lots of factors that can influence the overall cost of a Critical Illness policy. Some of these include things like your age, amount and level of cover, occupation, hobbies and your ‘smoker status’.

If you’ve had or currently have a serious medical condition then you may find it more difficult to get cover than someone who has not, and the cost of policies may be raised too. This is because insurers take into account certain risk factors and the likelihood of an individual suffering a serious illness. Smoker status and family medical history can also have an impact on cost. 

Those who have had or currently have a medical condition may wish to speak to an adviser. After getting to know you and your situation in a little more detail, they speak to underwriting teams on your behalf to obtain an indication of how each provider may treat an application for cover - including whether they will look to increase the premium, or place any exclusions on your policy. Based on this research, our team of expert advisers then make recommendations for your cover, tailored to your specific circumstances.

To speak to our advised team, please call: 

01392 436 193 (Monday to Friday, 9am - 5.30pm)

Our Trusted Life Assurance Brands...

  • Zurich
  • Legal And General
  • Aviva
  • AIG
  • Beagle Street
  • Canada Life
  • Cavendish Life Cover
  • LVE
  • Royal London
  • Vitality Life
  • Virgin Money
  • Budget Insurance

How can a lump sum payment from a Critical Illness claim be used?

The lump sum payouts resulting from a valid Critical Illness claim can be used however you and your loved ones see fit, for example:  

  • To repay outstanding loans or debts (such as a mortgage)

  • To alter your current property to assist with accessibility

  • To pay for treatment to help you recover

  • To go towards moving property if required

  • To assist with daily living costs and general household bills

Are Critical Illness payouts taxable?

Are Critical Illness payouts taxable? 

If you have been paying for the cover yourself, the answer is no, you won’t have to pay tax on a payment from a Critical Illness policy in the event of a claim. In this context, a payment from a Critical Illness policy is not classed as income. This is because the money you have used to pay for the cover (your salary) will have already been taxed before you received your payslip!

Ultimately, Critical Illness insurance is designed to support you and reduce the financial shortfall you might face as a result of being diagnosed with a Critical Illness. 


It’s worth knowing that there are a handful of instances where a payout from a Critical Illness policy might be taxable.

When might Critical Illness payouts be taxable?

You or your loved ones may face a potential tax charge on the policy proceeds in certain circumstances, for example:

  • If you make a claim on your Critical Illness policy, but do not receive the policy benefit before you pass away, the money will form part of your estate. In the 2021/22 tax year, if your estate is valued at more than £325,000, inheritance tax may be applicable on the insurance payout.

  • If you have a combined Life and Critical Illness policy and you pass away, with the life insurance proceeds becoming part of your estate. This situation can potentially be avoided if the policy is written into trust.
  • If your policy has an investment element and you surrender it, but the cash surrender value is greater than the premiums paid, the difference is taxable. Cavendish Online do not offer these types of policies.
  • If your employer pays for your Critical Illness cover on your behalf and you make a valid claim on the policy the payout will be taxed via PAYE (just like your salary is).
  • If you share the cost of the Critical Illness cover with your employer, then the tax-free proportion of the payout in the event of a claim will mirror the proportion of the premium you pay for. So, if for instance you agree to cover half of the premium cost, and your employer covers the other half; you would pay tax on 50% (i.e. half) of the pay out.

    If you are unsure about the specifics of a Critical Illness policy arranged through your workplace, it may be worth contacting your employers/HR team for further information and support.

    Please note that we are not tax experts. If you would like advice or further information on tax and how it affects your current circumstances, we would suggest you speak to an Independent Financial Adviser or qualified accountant.

How do Critical Illness policies tend to differ?

Though this list is not exhaustive, Critical Illness policies and insurance providers often differ regarding the following: 

•  The amount of conditions covered (both full pay out conditions, and partial payment conditions)

•  Their definitions of the conditions covered in the policy

•  Additional benefits included within the policy (e.g. bereavement services, fracture cover, GP services)

•  Children’s cover (the level of cover varies from provider to provider, and is not always included in the quotation by default)

•  How they assess existing medical conditions, occupations and hobbies (i.e. the insurance providers underwriting stance)

  • Whether the policy has the ability to keep up with inflation (i.e. 'indexation' or the ability to index link a policy)

Before purchasing Critical Illness insurance it's always worth taking the time to read through your chosen insurers policy documents to know exactly what conditions you are covered for. If in any doubt, contact the insurer directly for further support. 

How do I know which insurance provider and Critical Illness policy is best for me?

How do I know which insurance provider and Critical Illness policy is best for me?

Depending on your situation and budget, the most suited provider can vary. It’s important to understand the comprehensiveness of a policy is not always linked to the premium. In addition, where one provider may place exclusions on a policy due to an existing condition or increase the premium as a result of it, others may not.

As such, if you're unsure what is right for you, you may want to speak to one of our friendly expert insurance advisers. They can help you secure the right policy for your needs and make recommendations for your cover. 

Call the advised team today on:

01392 436 193 (Monday to Friday, 9am - 5.30pm)

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