Critical illness cover pays out a tax-free lump sum if you are diagnosed with a major illness as specified in the policy, for example cancer and heart disease. Some insurers will make a part payment on an early-stage diagnosis of a condition specified in the policy, the percentage will vary from company to company.
Many people buy a combined life and critical illness policy, and it often makes sense to do so. In this case, a payment would be made on either diagnosis of a critical illness, or death, whichever is the sooner. If the cover is combined in this way, the policy premium is usually cheaper than it would be for separate policies, as there is only ever one lump sum paid out by the insurance company.