You’re buying a home or remortgaging, and suddenly everyone’s talking about critical illness insurance.
Your lender mentions it, your broker suggests it, and you’re left wondering if it’s actually required or just another way to increase costs during an already expensive process.
The mortgage world can feel overwhelming with all these “recommended” extras, you’re already stretching your budget for the biggest purchase of your life.
No lender (or broker) can legally require you to buy critical illness insurance as a condition of your mortgage. However, that doesn’t mean it’s the wrong choice for your circumstances.
This guide explains exactly when this insurance makes sense and what alternatives exist to protect your home and family’s financial security.
What Is Critical Illness Insurance?
Critical illness insurance pays you a tax-free lump sum if you’re diagnosed with a serious medical condition listed in your policy.
Think of it as an emergency fund that only exists when something genuinely serious happens to your health.
The money comes with no restrictions on how you use it.
You could pay off your entire mortgage, keep up with monthly payments while you recover, or cover private medical treatment costs. Most policies cover the major conditions like cancer, heart attacks, and strokes, plus dozens of other serious illnesses.
Here’s what makes it different: you receive the money while you’re alive and dealing with treatment.
Life insurance only pays out when you die. Income protection partly replaces your salary month by month, but this gives you one large sum upfront, with you deciding what to do with it.
Understanding Policy Terms
Most policies require you to survive for 14 to 28 days after diagnosis before the payout happens.
This period, called the survival period, ensures the condition is genuinely serious rather than something you’ll recover from quickly, it also helps to keep the premiums down.
Insurance companies define conditions very specifically.
A “heart attack” in medical terms might not qualify for a payout if it doesn’t meet the insurer’s exact definition. These definitions are usually quite strict, so understanding exactly what’s covered matters enormously.
How the Payout Works With Your Mortgage
When you receive a payout, you’ve got complete freedom over how to use it. The money is paid in to your bank account, you make the decisions.
Many people choose to clear their mortgage debt entirely, removing the monthly payment pressure during treatment and recovery.
If you’ve got a £500,000 mortgage and receive a £500,000 payout after being diagnosed with multiple sclerosis, you could become mortgage-free overnight.
Alternatively, you might pay off £200,000 and keep £300,000 for treatment and family support.
Once the insurance company have settled your claim, the critical illness protection then stops.
Read more: How does critical illness insurance work?
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Who Needs This Protection?
Most people could benefit from the financial assistance that these policies provide.
Even for people without dependants, having a lump sum in the bank means any recuperation period can be less stressful, taking your time to get better.
It is considered more of a priority if you are married, have a mortgage, or dependants.
Your financial adviser can discuss this with you, helping you to decide.
Do you need life insurance to get a mortgage?
The good news is that it’s not compulsory for you to take out a life insurance policy when getting a mortgage. It might be a very sensible thing to do, but it’s not a legal requirement.
Alternatives to Critical Illness Cover
There’s no direct alternative to critical illness cover (CIC). It uniquely pays out a lump sum once you have been diagnosed with an insured illness or condition.
There’s no requirement for you to work, or be unable to work, except for some disablement cover sections.
While many people may think that you get diagnosed with a medical condition and then you receive treatment to get better, this process can take years.
In the meantime you may not be working to your full capacity, and earning less as a result.
Life Insurance
Life insurance costs significantly less than CIC and might suit your needs better. If your main concern is protecting your family’s home after your death, term life insurance covering your mortgage balance provides that security at a lower cost.
Income Protection Insurance
Income protection insurance replaces a percentage of your earnings if you can’t work due to illness or injury. Instead of one lump sum, you receive monthly payments until you can return to work or reach retirement. This approach suits working people who prefer ongoing support rather than managing a large sum during stressful times.
Workplace Benefits
Many employees overlook existing workplace benefits. Group life insurance, income protection, and critical illness schemes often provide more protection than people realise. Check your employee handbook or speak with HR before buying additional insurance.
Building Your Own Emergency Fund
Instead of paying an insurance company, you build up some savings that remains yours regardless of what happens to your health. To be fair, everyone should do this. And while having emergency savings is a good idea, it is unlikely to pay off your mortgage if you suddenly have a heart attack or become disabled.
How a Broker Can Help You Decide
Independent brokers compare plans across the entire market rather than pushing one company’s products.
They’ll assess your specific circumstances, existing protection, and financial goals to recommend the most suitable approach.
A good broker examines your employee benefits, calculates potential gaps in protection, and explains how different products work together. They might discover you’ve already got more protection than you realised, or identify combinations that cost less than standard policies.
Brokers also understand claims procedures and company reputations. Some insurers pay claims quickly and interpret definitions generously, while others create obstacles.
Your Next Steps
From a UK lending perspective, neither life insurance or critical illness insurance is required to get a mortgage.
The choice will always be yours.
However, both of these provide financial protection for you and your family. The decision depends on your existing financial resources, family situation, and personal risk tolerance.
Start by reviewing what protection you already have through work, then calculate the real financial impact if you couldn’t work for an extended period. Compare insurance costs against building your own emergency fund.
Speaking with an independent broker helps you see the full picture and avoid costly mistakes. They’ll ensure any protection you choose actually works for your specific situation.
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Find a life insurance brokerFrequently Asked Questions
No, critical illness insurance is never legally required for UK mortgages. The Financial Conduct Authority prohibits lenders from making any insurance a condition of lending, giving you complete freedom to choose.
No, lenders cannot refuse your mortgage application because you don’t have critical illness insurance. Any lender attempting this would be breaking FCA regulations and could face serious penalties.
You’ll still need to make monthly payments using whatever income and savings you have available. This might include statutory sick pay, partner’s income, state benefits, savings, or help from family members.
Most policies cover cancers, heart attacks, strokes, multiple sclerosis, kidney failure, major organ transplants, paralysis, and blindness. Policies differ, so check the specific list with each insurer.
Life insurance costs less but only pays when you die. Critical illness insurance pays while you’re alive dealing with treatment. Many people benefit from having both types of protection.
Yes, the payout comes with no restrictions. You could clear your mortgage, pay for private treatment, support your family, or save the money for future needs.
Critical illness pays a lump sum when you’re diagnosed with a covered condition. Income protection pays monthly amounts while you can’t work due to any illness or injury.
Age works in your favour for cheaper premiums, and early protection means you’re covered before any health issues develop.
