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Understanding the true cost of cancelling critical illness policies

Planning & protection

23 May 2023


Hannah Rogers

Image of a stethoscope

As we go through life, unexpected events can happen at any time. Critical illnesses, such as cancer, heart attack, or stroke, can strike without warning and have a significant impact on our health, finances, and overall well-being.

That’s why many individuals choose to protect themselves and their loved ones by purchasing critical illness insurance policies.

There may be circumstances, particularly in economic downturns when cancelling these policies become more attractive in favour of increased monthly income. While this may seem like a straightforward decision, it’s crucial to understand the true cost of such action.

Cancelling critical illness policies can have severe financial consequences in the long run. Independent financial adviser, Hannah Rogers explores the key reasons why cancelling these policies may not be the best course of action.


Loss of financial protection

Critical illness policies are designed to provide a financial safety net. If you are diagnosed after cancelling your policy, you may be left with significant medical expenses, loss of income due to inability to work, and other financial burdens.

The true cost of cancelling a critical illness policy is not just the premiums paid, but also the potential financial impact of not having adequate coverage when it’s needed the most.


Difficulty obtaining new coverage

If you cancel your critical illness policy and later decide to reapply, you may face challenges in obtaining new cover. As we age, our health risks increase, and insurers may impose stricter underwriting criteria or charge higher premiums based on pre-existing health conditions. This means that cancelling a policy could result in reduced options or increased premiums if you decide to reapply in the future.


Loss of investment value

Some critical illness policies, such as those with a cash value or investment components, can provide an additional source of savings or investment growth. Cancelling such policies may result in the loss of an accumulated cash value or potential investment gains. It’s important to carefully review the terms and conditions of your policy before making any decision to cancel.


Emotional distress and peace of mind

Cancelling a critical illness policy can also result in emotional distress and loss of peace of mind. Knowing that you and your loved ones are financially protected in case of a critical illness can provide a sense of security during challenging times.


While cancelling a critical illness policy may seem like a way to save on premiums in the short term, it’s essential to understand the true cost of such a decision.

Loss of financial protection, difficulty obtaining new cover, loss of investment value, potential increase in premiums for reapplying, and emotional distress are some of the significant consequences of cancelling a critical illness policy.

Before making any decision, it’s crucial to carefully evaluate your current financial situation, future needs, and seek advice from a qualified professional to fully understand the implications of cancelling your policy.

It’s arguably better to proactively review your policy, update your cover as needed, and ensure that you and your loved ones have adequate protection in case of a critical illness.


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