Critical Illness Insurance Tax Calculator

For personal CI policies, the lump sum is completely tax-free — it is not income and not a capital gain. For employer key person CI (company receives payout with trading purpose), the proceeds may be taxable as trading income. For group CI where employees receive the payout, it is generally tax-free.

Personal CI: No. Premiums are paid from after-tax income. Employer group CI: Premiums are a CT-deductible business expense and not a taxable benefit in kind for employees (under group/whole-workforce covers). Key person CI with trading purpose: Premiums are CT-deductible but proceeds are taxable.

For personal CI policies: writing in trust is generally not necessary since the payout is already tax-free and payable to you directly. However, a trust structure may be useful if you want the payout to go to family if you cannot manage it, or for divorce protection. Unlike life insurance, CI pays out while you are alive.

Standard conditions covered include: cancer (excluding minor forms), heart attack, stroke, multiple sclerosis, terminal illness, kidney failure, major organ transplant, coronary artery bypass surgery, and total permanent disability. Policies vary — always check the specific definitions carefully.

Yes. Combined life and CI policies are common — the policy pays out on either death or a qualifying critical illness, whichever occurs first. The tax treatment mirrors separate policies: personal combined policies — payout tax-free; employer key person combined — same purpose test applies.

A large CI lump sum could affect means-tested benefits if it pushes your capital above certain thresholds (e.g., Universal Credit capital limit of £16,000). It would not affect NI-based benefits (like state pension). Tax credits are not affected by a lump sum payout, but income arising from investing the payout might be.

CI pays a one-off lump sum on diagnosis of specific conditions, regardless of whether you return to work. Income protection pays a regular income while you cannot work, stopping when you return to work or reach the policy term. They serve different purposes and many people hold both.

A CI payout is paid to you while alive, so it forms part of your estate. If you invest the payout and later die with it in your estate, it will be subject to IHT. Writing the CI policy in trust (so proceeds go directly to beneficiaries if needed) is one strategy, but is less common than for life insurance.