Critical Illness Insurance

Critical illness insurance tends to be much cheaper than PHI. Unlike PHI, it pays you a lump sum on diagnosis of certain specified illnesses: it does not pay you an income on disability. The specified illnesses usually include cancer, heart bypass surgery, kidney failure, stroke, heart attack and major organ transplant.

It is crucial to remember that, unless your illness is on the list specified in your policy, you will not receive a penny: the relative cheapness of critical illness insurance has its price. Because of the strict limitations on qualifying disability, self-employed people might be best advised to provide for their dependants through a PHI policy.

In addition, it is worth bearing in mind that any lump sum you receive before death may push the value of your estate over the Inheritance Tax threshold. At present, your beneficiaries will be taxed 40% of any amount over £234,000.