Illness insurance protects your income if you are unable to work because of an accident, long-term ill health or disability.
There are several different kinds of illness insurance. Some pay out a single lump sum, some will pay out a regular monthly income, while others will cover payments for specific things, such as your mortgage or credit card payments.
This page explains what types of illness insurance are available and what you need to think about before you take out this cover.
Why take out illness insurance
If you can’t work because of illness, accident or a disability, you may be able to get state benefits or sick pay from your employer if you’re unable to work. However, these may not cover all your needs.
it’s worth checking if you could manage if you had to rely only on state benefits. Compare this amount with how much you think you would need to live on. It might be worth thinking about taking out illness insurance to boost your income.
Employer’s sick pay or pension
Your employer may pay you Contractual Sick Pay. This means that you get all or part of your regular salary for a set period of time if you can’t work.
Some firms will also pay your pension early if you have to retire early through ill-health, although the amount you get might be less than if you had worked to retirement.
If you’re not sure about what benefits you’re entitled to from your employer if you can't work through ill-health, ask them for details.
If you're self-employed
Illness insurance is worth considering if you’re self-employed and can’t get pay from an employer or claim Statutory Sick Pay. However, there are some types of illness insurance that won't cover you if you’re self-employed, Check policies very carefully before you take one out.
Types of illness insurance
Critical illness insurance
Pays out a lump sum if you are diagnosed as having a specific illness, such as cancer or heart attack. If you have a mortgage you may have been sold critical illness cover when you took out your loan. This is not the same as mortgage payment protection insurance.
Income protection insurance
This is also called permanent health insurance. It pays you an income for the rest of your life or until you reach retirement if you can’t work because of ill-health or disability. You usually have to wait a few weeks or months before payments start.
Payment Protection Insurance (PPI)
Covers mortgage, credit card, store card or personal loan payments if you can’t work because of ill health or become unemployed. You may have to wait a few months before the payments start and they usually stop after a certain amount of time.
A provider should never sell you PPI without making sure the policy is suitable for your needs. If you think you've been mis-sold PPI, you can make a claim for compensation.
Mortgage payment protection insurance
Only covers your mortgage payments. You may also have to wait a few months before payments start and they usually stop after a certain amount of time.
What to think about before you take out illness insurance
Before you take out illness insurance check whether you have illness insurance combined with another insurance policy or with your mortgage.
Also check what benefits your employer pays out if you can’t work because of ill-health or disability.
You might have savings you can use instead of insurance. However, work out if your savings will cover a long period of ill-health.
What illness insurance doesn't cover
Illness insurance policies don’t always cover every illness. Some policies say you have to be extremely ill or totally disabled before you can claim.
You may not be covered for illnesses that you've had before so check the insurance policy to see what it will pay out if you become ill.
Some illness insurance policies won't cover you for any conditions you already have. If you are in poor health, you may not be able to get illness insurance.
You must give your insurer as much information as possible about any medical conditions you have, or have had in the past. If you don't, you may not be able to make a claim.
How much illness insurance costs
Illness insurance can be expensive and you won't get a refund if you never make a claim. As you get older, it costs more because there's more chance you may make a claim.
If you do a dangerous or very physical job, you may find it difficult to get illness insurance or you may have to pay higher costs to get cover.
If you have any dangerous hobbies or a lifestyle that may include smoking, heavy drinking or drug taking, you may not be able to get illness insurance.
Insurers may not pay out if you don’t tell them beforehand about things that may affect the claim.
When you can make a claim
You usually have to wait at least a month before you can make a claim. Check how long the waiting period is and think about how you will support yourself during that time.
It may cost less for illness insurance if you get sick pay from your employer or have savings you can use for the first few months. You can arrange illness insurance to start paying out when your other income runs out.
Page last reviewed on 20 February 2020