In a cost of living crisis, many may be thinking about cutting back on life and health insurance, or income protection. We look at the benefits – 

The TV presenter Jonnie Irwin has terminal lung cancer, but instead of making memories with his family, he is worrying about money. He regrets not taking out critical illness cover. “It put a lot of pressure on me, having to work on days when I didn’t want to,” said Irwin, who presented A Place in the Sun and Escape to the Country.

Critical illness cover

Critical illness insurance pays out a tax-free lump sum if you are diagnosed with a serious medical condition such as cancer, a heart attack or stroke. More than 18,000 critical illness claims were paid in 2021, with an average payout of £68,000, according to the Association of British Insurers.

You can buy critical illness cover on its own but it is often sold as an add-on to life insurance, which is paid out to your family when you die. It costs an average of £26 a month for £56,000 worth of cover, but it is cheaper the earlier you buy it — £15.68 a month on average for the under-30s doubling to £33.80 in your forties. Smokers pay roughly twice as much as non-smokers.

Not all medical conditions are covered, and you might not be covered for any illnesses you or a family member has had before.

Some policies come with extras, such as access to a private GP, physiotherapy, or counselling.

Life insurance

While life insurance is about providing for the people you leave behind, critical illness cover is about helping you through a tough time.

You can get life insurance and critical illness cover where the payout is linked to inflation, or cheaper cover where the amount you get reduces as you pay off more of your mortgage. Family income benefit will pay a monthly income to your beneficiaries instead of a lump sum.

Level-term life insurance pays out a set lump sum if you die within the terms of the policy and is linked to inflation. Decreasing term life cover covers you for a set period, but the payouts reduce as you get towards the end of the term.

Some life policies allow you to make an early death claim if you are diagnosed with a terminal illness.

Life insurance costs an average of £30 a month for a policy that will pay out £230,000, but as with critical illness insurance it is cheaper the earlier you buy it and you will pay extra if you smoke.

Income protection

Another type of insurance that will cover you in the event of illness or other tough times is income protection. It is designed to cover your monthly bills by paying roughly two thirds of your salary if you can’t work due to illness or injury. While there is no list of conditions, it is important to check what the insurer counts as being unable to work — it can vary from policy to policy.

You can take it out for your whole working life or just 12 months. Short-term policies are becoming more popular as a way to get cover relatively cheaply. These policies can still cover your whole working life, but claims are restricted to a set period, such as 12 months, so they are cheaper. So if a bad back prevented you from working for three months, your short-term policy could cover you for this, and then you could claim again for a further nine months if the problem recurred, but then your policy would end.

You can cut costs by opting for a longer wait between stopping work and getting a payout — from one week to up to two years. This may be worthwhile if you know that you will get sick pay from your employer or if you have savings to fall back on.

Income protection cover for a 45-year-old that would pay out until they could go back to work or until they were 65 would cost from £85 a month. A policy that would only pay out for two years would cost from £27 a month.

Watch out for exclusions

As with all insurance, it is important to read the small print. There will be a raft of exclusions which could mean that you will not get a payout. The most common ones are pre-existing conditions — for example, your recurrent back problem might mean you would not be covered for spinal conditions, or would have to pay higher premiums.

Most insurers cover 50-100 different conditions, with everything else excluded, but some types of illness will only qualify for a partial payout. For instance, on a £200,000 critical illness policy, you might get a £20,000 to £25,000 payout for a non-invasive type of cancer, but if it gets worse you can claim again. But in some cases an insurer may refuse your claim. The Financial Ombudsman notes the case of Jorge, who challenged his insurer’s refusal to pay out his critical illness claim for a heart attack and lost. The Ombudsman supported the insurer, which said Jorge’s heart attack was not severe enough to meet the policy definition, even though it left him critically ill and unable to work.

Why and when to get insurance

A survey of 5,000 UK adults conducted last year by the Women in Protection Network found that 17 per cent had income protection (20 per cent of men and 14 per cent of women).

The consumer champion Jane Hawkes, 47, who writes a blog at, claimed on her income protection policy when she was diagnosed with multiple sclerosis two decades ago. She had worked as a flight attendant for British Airways and although it paid sick pay, she needed a lot of time off.

The earlier you take out income protection insurance, the cheaper it will be. If you are in later life and plan to retire soon or you have plenty of savings, are mortgage-free and don’t have young children, you may not feel the need.

The best cover for less

Do not take out insurance that you may already have. Many employers offer life insurance that will pay out two to four times your salary to workers’ families, some as part of a company pension.

Income protection may be sensible if you are self-employed because you will not qualify for statutory sick pay of £99.35 a week for up to 28 weeks. You may be able to get universal credit or employment and support allowance but it may not be enough to cover your bills.

To work out how much cover you need, think about your dependants and debts. If you cannot afford to spend a lot on premiums, speak to one of our insurance brokers to see what you can get for your budget. Even a little cover is better than nothing.

While the price you pay for insurance will depend on your health, age and lifestyle, we can shop around and look for better deals.

When to cancel

If the cost of living crisis is forcing you to make cutbacks, consider reducing your life insurance, critical illness or income protection cover rather than cancelling it. If you do cancel it, you won’t get anything back for the money you have already spent and you may have to pay more for the same cover in the future. Call your insurer and see what they can offer you. The Financial Conduct Authority, the City regulator, is planning to update its guidance on how insurers support customers in financial difficulties, such as waiving fees to adjust policies, or suggesting more suitable products.

“One in two of us is going to be affected by cancer and we have to be better prepared,”