Life insurance and critical illness cover: how are they different, and do you need both?

They’re not. It’s a bit of a myth that they have the same purpose. While they can both help ease financial pressure after a significant future life event by paying out on a valid claim, they’re for two very different situations.

A life insurance policy is there to help look after your loved ones financially if you pass away within the policy term. So it's about making provision for your children and partner when you're no longer around. Our policy also pays out the cover amount on a terminal illness diagnosis, that meets our definition and you're not expected to survive for more than 12 months.

Critical illness cover is about helping you live life after a serious illness, by paying out a lump sum if you are diagnosed with or undergo surgery for a critical illness covered by the policy, and survive for at least 10 days. That could help you worry less about your finances while you recuperate and get the treatment you need.

Our critical illness cover includes 52 conditions, with a children's benefit at no extra cost. You’ll find a full list of what’s covered here. Most insurers include heart attacks, strokes and types of cancer, but make sure you check the policy documents carefully, so you know what is and isn’t covered.

A critical illness policy pays out in one lump sum. That could be the full cover amount, or a partial payment, if it’s listed as an ‘additional’ critical illness, or if the claim is for a child’s critical illness.

It’s not considered a specific replacement for your regular salary but, if you can’t work for a while, the lump sum could help take the pressure off.

The tax-free payout could go towards general living costs, so you have a financial boost to help you manage. It could help cover monthly rent payments, or instalments on a loan or a repayment mortgage. Or perhaps you’d want to put it towards bills and other regular outgoings, or childcare costs. You might also want to factor in potential treatment and travel costs, or adapting your home to make life easier with your condition.

With life insurance, it’s about what your loved ones might use it for when you’re gone. While your considerations will be broadly similar, you might also want to bear in mind funeral costs, and making up for your lost salary. Or you might want to provide a buffer against unexpected costs, or just help make sure they can afford to stay in the family home.

To work out how much cover you might need, you might want to try our life insurance calculator.

With life insurance, the payout either goes to the joint policyholder or, if it's a single policy, it's paid into your estate for the executor to distribute.

For more control over who gets the payout, you could consider putting your policy in a Trust. As it won’t be counted as part of your estate, the money will usually be exempt from Inheritance Tax ^{Footnote [1]}.

If you have critical illness cover and make a full or partial claim, you’d get the lump sum as the policyholder. So the money, and the decision making, would be in your hands.

We know the difference a critical illness cover payout can make. In 2023, we paid over £362 million in critical illness claims ^{Footnote [2]}. But our customers are more than a statistic. You can see the difference having cover made to her at a difficult time by watching Linda’s story.

An insurer won’t tell you or your beneficiaries how the lump sum should be spent. It’s up to you, or the people you leave the money to.

What it’s used for can also depend on the type of cover you choose when you take out the policy – whether it’s level or decreasing cover. Level cover is about helping towards living costs, and maintaining living standards, while decreasing cover is usually focused on mortgage protection, to help pay off a repayment mortgage, or a long-term loan.

Here’s more about types of term life insurance. And our video helps explain how to choose your type of critical illness cover.

Whether you have joint or single cover, life insurance and critical illness cover policies only pay the full cover amount once, and they end after that. The policy will end if premiums are not paid, the policy has no cash in value at any time.

You can, and you might choose to, because they’re for different things. Depending on your insurer, you can take them out separately, or as one combined policy.

Some insurers only let you have critical illness cover if you buy life insurance at the same time, as one, integrated policy. Ours are standalone. So when you apply for our life insurance you can add critical illness cover, but they’re individual policies, so you don’t have to take out both.

The good thing about having two separate policies is a successful critical illness claim won’t affect your life insurance policy, which can still pay out if you pass away during the policy term.

If your cover isn’t a combined policy, you can usually choose different cover amounts and terms for each policy, if that reflects your needs.

Your premiums will be based on things like the length of cover, your cover amount, your age, medical history, lifestyle and occupation. Adjusting the number of years you want a policy to run for, or how much cover you choose, can help reduce your premiums, if that’s what you’re looking to do.

Generally, critical illness insurance tends to be more expensive, as you’re usually more likely to get a critical illness than pass away during the policy term. Though you might be interested to know that more than half of our customers pay just £19.00 a month or less for our critical illness cover ^{Footnote [3]}.