Critical Illness Insurance is designed to pay out a tax-free lump sum in the event of you suffering from a serious illness or if you have to undergo certain types of surgery.

The lump sum is to help with the extra costs of living with a particular condition but it's important to note that it only pays out if you contract one of a defined list of illnesses.

The majority of critical illness claims are for cancer, coronary artery bypass surgery, heart attack, kidney failure, organ transplants and stroke and these core illnesses are usually on the list. You will be required to pay more for any specific illnesses you would require cover for.

Unless you have substantial savings (or other sources of income), some form of critical illness insurance may well make sense for you. How much you should have depends on your circumstances. Consider the lump sums that you might need to make in the event of contracting a serious illness -- being able to pay off the mortgage, for example, or to make modifications to your home. If you would be able to cover the necessary lump sums from your own or your partner's savings, then critical illness insurance may well be unnecessary and it may be more appropriate to concentrate on income protection.

There is a wide range of policies available. The size of your premium will depend on your age, sex, health, occupation, whether or not you smoke, the type of cover you need, and how long you need it for. Bear in mind you'll have to pay more if one of the core illnesses happens to run in the family. As always, read the small print.