Critical Illness Insurance

What is critical illness insurance?

Critical illness insurance (also known as trauma insurance) provides you with a lump sum benefit if you suffer a serious medical condition. This lump sum benefit that can be used to ease your financial strain during an already stressful time. Most policies cover up to 50 different medical conditions including:





Heart attack

Critical illness insurance can either be bought as a standalone policy or bundled with your life insurance policy. Keep reading to find out more about the benefits of critical illness insurance.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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What types of critical illnesses do Australians make insurance claims for?

This varies depending on the sex of the claimant. However, cancer was the top claim made amongst both men and females.

ConditionTotal % of claims (males)Total % of claims (females)
Ischaemic Heart Disease16.30%2.50%
Benign Brain Tumour5.60%2.70%
Heart Surgery2.50%0.60%
Kidney Failure0.50%0.40%
Major Head Trauma0.80%N/A
Chronic Liver Failure0.10%0.10%
Major Burns0.10%N/A
Aplastic AnemiaN/A0.10%
Systemic Lupus ErythematosusN/A<0.1%

Survey of the top trauma insurance claims in Australia between 2008-2012 by General Reinsurance

What does critical illness insurance cover?

Critical illness insurance shouldn't be confused with income protection insurance. While income protection provides you with an ongoing benefit of 75% of your monthly income in the event you're unable to work due to an illness or injury, critical illness insurance provides you with a lump sum benefit when you're unable to work due to a listed condition including:

There is no restriction on how you use the proceeds of a payout from a critical illness insurance policy. You can use it to pay out your mortgage, pay for your medical expenses, you can use it for a long rehabilitation type holiday, clear yourself of debt or pay childcare and bring in home help. The benefit you will receive will allow you to appreciate your changed condition and adjust accordingly.

A major point to keep in mind is that the benefit is only payable should you survive. This is the reason a survival time is written into the insurance contract. Some insurance providers have a survival time of just 15 days while others require at least a month. To cover this anomaly you can have your life insurance and critical illness insurance combined into the one policy with some insurers.

When does a critical illness insurance policy payout?

Some of the main requirements for a payout when it comes to critical illness insurance include:

  • Diagnosis of a covered condition. The conditions covered are listed in the product disclosure statement (PDS) of your policy. You can either receive a full or partial pay-out, depending on the condition.
  • Your diagnosis occurs after the exclusion period. This is typically after 90 days from when you first purchase your policy.
  • You survive the illness through a defined period. This is typically set at two weeks from when you are diagnosed with the illness.

Note: Check your PDS for the specific requirements of your insurer.

Percentage of sickness and accident claims that are paid out

Data shows a slight decrease in sickness and accident claims:

YearAccepted claims (%)
Difference (%) -3.86%

Figurers are taken from Code Governance Committee's General Insurance Data Report 2014-2015.

Why are less claims being accepted by insurers?

The core reasons for less illness claims being paid out include:

  • Pre-existing medical conditions Many policies will not cover illnesses that arise from pre-existing medical conditions.
  • The exact illness is not covered. Most critical illness policies will have a set list of what conditions are covered. Make sure you check your product disclosure statement (PDS).
  • Non-disclosure. Your claim can be declined if you fail disclose a pre-existing medical condition.

What are the key features included in a critical illness policy?

Critical illness insurance is a policy that pays a lump sum in case of serious illness so that you can concentrate on recuperation instead of finances.

Common features include:

  • Cover for common critical conditions and illnesses. Some policies have coverage for up to 60 different illnesses. If you receive a diagnosis you can begin the claim process.
  • Access to specialist doctors or additional information. Some brands will also provide access to specialist medical personnel.
  • Lump sum payment. This can range from $20,000 to $100,000 depending on the illness.
  • Financial planning. Some brands will reimburse financial planning up to $5,000 so you can plan to use your lump sum payout.

What additional critical illness features can I take advantage of?

Additional features can be added that increase the benefits of the policy, such as:

  • Wider range of coverage. At higher premiums, the range of covered conditions increases to include things like organ failure, HIV contracted through work, intensive care or loss of senses.
  • Death benefit. A benefit payout of up to $5,000 may be awarded if there is a death within 14 days of suffering a critical condition.
  • Insurance buy back. Insurance will be automatically restored to the original amount 14 days after making a claim and can be used for a second critical condition.
  • Child support benefit. Added coverage for your children.

Is critical illness insurance worth taking out?

Critical illness insurance is important to consider for multiple reasons. Firstly, it can help you keep your household in order while you are getting better from an illness or receiving treatment. This means you will be able to cover the costs of bills, childcare and groceries. It can also help you pay for expenses like mortgage payments or rehabilitation if you don’t have other coverage.

Consider this as an example. If a person takes out a large mortgage for a property and then suffers an illness and cannot work, they may not be able to afford the repayment costs. The repayments can start to mount up, and if the individual is unable to return to work, the property can go into foreclosure. Critical illness insurance allows you to protect your assets if you are ill and unable to work.


  • Lump sum benefit paid for defined conditions
  • Cover for up to 60 illnesses depending on the policy
  • Free child cover is offered on some policies


The important details when it comes to critical illness cover

Is critical illness insurance the same as TPD insurance?

While it may seem subtle, critical illness insurance and TPD (total permanent disability insurance) are two different types of policy.

Critical illness insuranceTotal Permanent Disability insurance.
What is the purpose of cover?In the event of serious illness or injury, critical illness insurance pays out a lump sum that can be used by the individual to pay debts or medical bills, make home modifications or be used as an income. This type of insurance is designed for individuals who suffer a health setback and are unable to return to work for an extended period.A TPD policy pays out lump-sum benefit in the event of permanent disablement with the inability to return to work. As with critical illness insurance, the payout can be used for expenses or as an income.
Sum insuredTypically up to $5 million (less than a TPD payout) Typically up to $10 million (higher payout than critical illness insurance)
Is death cover included?Yes, with some brands.Yes, with some brands.
Policy optionsInflation protection, premium freezing, financial planning and child support benefits.Inflation protection, partial disability benefit, premium freezing, choice of premium structure and financial planning.
Option through super?NoYes
ProsCombines well well with other plans and can include different premium structures. Covers a large range of medical conditions.It's often possible to pay TPD insurance premiums from a superannuation plan.
ConsWaiting period until the benefits can be used, an exclusion period, and premiums can be more expensive compared to other types of insurance.There is a need to meet a specific definition of disablement in order to receive a benefit. Additionally all policies will convert to a modified status after the age of 65 or 70.

How much critical illness cover can I get in comparison to other life insurance benefits?

Below is the maximum sums insurable on a sample policy that offers critical illness, TPD, income protection and death benefits.

Benefit Maximum sum insured
Death cover$15 million
Total and permanent disability$6 million
Critical illness$3 million
Child critical illness cover$300,000
Income protection$50,000

What is a critical illness exclusion period?

A critical illness exclusion period, also referred to as a qualifying or waiting period by some brands, is a time frame during which claims will not be paid. The period can begin from:

  • The start of your policy
  • The date you apply for an increase in coverage
  • The most recent state that the policy was reinstated

How long should an exclusion period be?

An exclusion period is usually 3 months (90 days) but it can be as high as 6 months for some conditions. As an example, most types of heart surgery or stroke have a 3-month exclusion period, whereas forms of malignant cancer can have a 6-month exclusion period.

Exclusion periods on different critical illnesses

Critical illnessExclusion period
Coronary Angioplasty3 months
Heart attack3 months
Malignant cancer6 months

Note: This is a rough indicator and not indicative of an actual policy

What is the survival period?

The survival period refers to the time period after you are diagnosed before you can be paid out.

Why is there a survival period?

The reason behind a survival period is because critical illness cover is designed to pay you out if you survive a traumatic event (as opposed to a death benefit).  Life insurance policies typically enforce survival period of two weeks.

Is critical illness insurance tax-deductible?

Premiums paid for the insurance are not tax-deductible, however the benefits paid from a claim are tax-free. The reason for this is that in comparison to something like income protection insurance which replaces income, critical illness insurance pays out a lump sum and is therefore exempt from capital gains tax.

Under what circumstances would critical illness insurance be cancelled?

Consult the terms and conditions for your plan for a full list of circumstances, but be aware that your policy  will end if:

  • The policy is cancelled.
  • You are paid out the full amount of insurance benefits and don’t have a buy-back option. Some policies can also be reduced to zero by other insurance extension benefits.
  • The life insurance coverage that the critical illness insurance is attached to ends.
  • Non-disclosure. That is, if you fail to disclose important details when you apply e.g. a pre-existing medical condition.
  • Premiums are not paid.
  • The termination date is reached. This can be a part of the policy or a result of age.
  • A fraudulent claim is made.
  • The individual dies.

Before you buy

What are some of the exclusions?

Instances where benefits may not be paid include:

  • A claim being made within the 3–6-month exclusion period
  • An injury that is self-inflicted or the result of attempted suicide
  • If the sickness or injury started or was diagnosed before the insurance was purchased
  • Illnesses that do not qualify for benefits. Check your policy for a full list of covered illnesses

Traps to look out for when it comes to critical illness insurance

  • An added cost. If you’ve been looking at general insurances, you may find that critical illness insurance is added in as an extra, however, it is also added at an extra cost. Therefore, you need to consider whether this is an extra you really need in light of your other insurance protection, or whether you are going to be over extending your finances to pay for this extra insurance.
  • Pre-existing conditions. If you are already in poor health, or you are a smoker for example, then you may have to pay much higher premiums, if you can secure any cover at all. Therefore, if you are already suffering a critical illness, you may not be able to take out critical illness insurance as you won’t be eligible to claim for a pre-existing condition.

Frequently asked questions about critical illness insurance

Q. How much will my benefit amount be?

A. You may worry about how your critical illness insurance will remain relevant as the cost of medical care and treatment always seems to be on the rise. That is exactly why most critical illness policies will include an automatic increase in the benefit amount each year, to keep in line with inflation. Typically your benefit will increase by the Consumer Price Index of the previous year, or by 5%, whichever is greater.

Q. Am I eligible for critical illness insurance?

A. If you are aged between 16 and 55 you are able to apply for critical illness insurance, and each individual insurance company will ask their own questions to assess your eligibility. You will be asked about your health, lifestyle and your family’s medical history and you may or may not have to undergo a medical test yourself. When your policy is approved and has been issues, you are guaranteed renewed coverage until you are 70 years old, as long as you pay your premiums on time.

Q. What is not included in critical illness insurance?

A. Your claim may not be eligible for payment is certain circumstances, for example if the condition is a result of a self inflicted injury, or if you have not applied for the cover personally, or an application is made on behalf of another person.

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Picture:James Keuning licensed under Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (image cropped)

Picture:Yo Szczepanska licensed under Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (image cropped)

Picture:Brain by Delwar Hossain from the Noun Project licensed under Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (image cropped)

Richard Laycock

Richard is the senior insurance writer at and is on a mission to make insurance easier to understand.

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