A critical illness policy in trust is usually a life policy with critical illness cover written in a split trust, so the death benefit goes to the people you name while the critical illness payout can stay with you. Whether one is worth setting up depends on which kind of policy you hold, and on the insurer forms described here you would be one of the trustees yourself.

Trust deeds differ between insurers. To have an FCA-authorised broker explain, without charge, what your insurer's deed would do with critical illness cover, give a phone number and email in the form on this page.

Does a critical illness policy need a trust at all?

Not as a rule. A trust exists to steer money to other people, and critical illness cover normally pays the person who is ill. The FCA's glossary describes stand-alone critical illness cover as a policy that "pays a lump sum to the policyholder" on diagnosis of a prescribed serious illness. Nothing in that payout is waiting for a beneficiary, so a trust on a critical illness-only plan has little to hold.

Aviva says as much in its own trust paperwork. Its trust page (read 27 October 2026) says Aviva trusts are available for a Life Insurance Plan or Over 50s life insurance, "but not for a Critical Illness Plan". Aviva's Discretionary Gift Trust form says the trust "isn’t suitable for critical illness only policies where you wish to receive the benefit paid", and its Survivor Trust form says, without that condition, that it is not suitable for critical illness only policies.

The trust question really belongs to a policy that pays on death as well, such as life insurance with critical illness added. Whether a trust is needed for that combined policy is a wider question, answered by does life insurance need to be in trust. For a plain explanation of how combined and stand-alone cover differ, see life and critical illness cover.

What is a split trust and how does it treat the critical illness payout?

A split trust divides one policy into two parts. Legal & General (L&G) puts it this way in its Flexible Trust Deed (W12712 10/2023): death benefits "will be held for the beneficiaries (known as the ‘Gifted Benefits’)", while critical illness or terminal illness benefits as defined in the policy "will be held for you (known as the ‘Retained Benefits’)". Its protection trusts page (read 27 October 2026) calls all of its trusts split trusts for this reason.

LV= describes the same idea on its trusts page (read 27 October 2026): a split trust "will allow you to receive payouts from the critical illness cover while putting the life insurance payout into trust". LV= lists the split trust as one of its three trust types, beside fixed and flexible, while at L&G every trust is split; how absolute, discretionary and flexible trusts differ is set out in life insurance trust options.

Can the critical illness benefit be given to the beneficiaries too?

It can, but only if the settlor chooses to. Both insurers below keep the benefit with the settlor unless a box is signed or ticked.

DocumentCritical illness benefit by defaultGiving it to the beneficiaries
L&G Flexible Trust Deed (W12712 10/2023)Held for the settlor as a Retained BenefitSign the box in clause 9 of Part B of the deed
Aviva Discretionary Gift Trust (AL53003 0826)Trustees hold it "for the benefit of the Settlor absolutely"Tick the box saying you do not want to benefit

Ticking Aviva's box has a stated consequence: you "WON’T get any money from any critical illness claim, including additional benefits such as children’s critical illness", and the trustees hold the money for the beneficiaries instead. Ticking it by mistake, then, would send a critical illness payout to the beneficiaries rather than to you. A broker can go through the deed an insurer would use for your policy when they call back.

Whether a payout kept by the policyholder is taxable income is a different matter, answered at are critical illness payouts taxable.

Who would the trustees be for a critical illness policy?

You would be one of them, and both insurers recommend naming at least one more. L&G's deed says the settlor "will automatically be a trustee" and that "it is important that at least one additional trustee is named"; Aviva's paperwork likewise makes the person creating the trust a trustee automatically and strongly recommends appointing at least one additional trustee. L&G adds that it is generally a good idea to have at least two trustees at any time, and that they must be over 18 and of sound mind.

The trustees are the legal owners of the policy, and L&G says it is the trustees who would make a claim for any policy proceeds. Where the critical illness benefit is kept, the deed has the trustees hold it on trust for you absolutely (5.1), and the note beside the clause 9 signature box says such benefits will be paid to the settlor. Your co-trustees are still legal owners of the policy alongside you, so choose people you would trust to act on it. Who can be a trustee, how many to name and how to replace one are on life insurance trustee.

What should you check before putting a policy in trust?

  • Is the policy life cover with critical illness, or critical illness only? The second may not be accepted into an insurer's trust at all, as Aviva's wording above shows.
  • Does the insurer's deed keep the critical illness benefit for you by default, and what must you do to change that?
  • Is it a joint policy? Aviva's Survivor Trust form says it can be used with a life policy that includes a critical illness benefit but not with critical illness only cover.
  • Do you already hold the policy? L&G's deed notes say its trust can be used for new or existing protection policies, and the process is laid out on putting a life insurance policy in a trust.

L&G's deed notes also warn that creating the trust or paying premiums may involve exempt or chargeable lifetime transfers for Inheritance Tax, and recommend taking your own legal or tax advice. Tax rules can change, and how a payout from a policy in trust is taxed is covered on is life insurance taxable in a trust.

Frequently asked questions

Can a critical illness only policy go in trust?

That depends on the insurer. Aviva's trust page says its trusts are not available for a Critical Illness Plan. How another insurer treats a critical illness plan is something a broker can look into for you when they phone, at no cost.

Who gets the money if I claim on a policy in a split trust?

Under L&G's and Aviva's deeds, the critical illness payout is held for you unless you chose to give it to the beneficiaries. The death benefit is held for the beneficiaries named in the trust. Who receives a payout when no trust is in place is on who receives the critical illness payout.

Do I need a solicitor to set up the trust?

L&G's deed says its trust documents are produced for consideration by you and your legal advisers, and that it strongly recommends your own legal or tax adviser. Aviva also strongly recommends legal or financial advice before setting up a trust.

Weighing up a split trust, either for cover you have or for a new plan? The form on this page collects your contact details, and a broker then phones to go through the options without charge.

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