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The difference between critical illness and life insurance

5 minutes

Critical illness cover and life insurance are two of the most common ways people choose to financially protect their family should the worst happen. 

But while the two types of cover offer similar benefits, they are different in a number of ways. In this guide, we explore the differences between critical illness cover and life insurance to help you decide which is the right type of cover for you and your loved ones. 

Critical illness and life insurance can financially protect your family if the worst happens.

What is critical illness cover? 

Critical illness cover is a type of insurance that will pay a one off payment to help you protect your home, family and lifestyle, giving you peace of mind that your dependants won’t struggle if you should happen to be suffering from a serious illness that stops you from working.

It differs from life insurance in that it can pay out while you are still alive. 

This one-off payment can be used to cover various expenses. It could cover your mortgage or medical fees if you were left unable to work, for example. Critical illness cover insures you against many life-changing conditions. Depending on your policy, these can include, among others: 

  • Cancer
  • Heart disease
  • Strokes
  • Alzheimer's disease
  • Kidney failure

A payout is most commonly made when a patient has been diagnosed with a qualifying condition, unlike life insurance, which is paid out after the policyholder has passed away. 

Who needs critical illness cover?

You might need critical illness cover if:

  • Your employer would struggle to pay your full income during a long period off work. 
  • You have dependants who rely on your monthly income.
  • Your savings wouldn't make up for lost wages.
  • You've got large regular bills to pay, such as a mortgage.

It’s important to remember that critical illness cover doesn’t only benefit families and homeowners. It can offer valuable support if you’re single and child-free too, covering everything from rent payments to lifestyle adjustments to ensure your life isn’t majorly impacted in the event you’re unable to work. The ability of you and your family to cope with a financial shock will ultimately determine whether you should buy standalone critical illness cover or add it to your life insurance.

What’s the difference between critical illness cover and life insurance? 

The key difference between life insurance and critical illness cover is the circumstances in which a policy is paid out. Life insurance policies make a one-off payment to your loved ones after you pass away. With critical illness insurance, the payment is made to you while you’re still alive, but have been diagnosed with a serious medical condition that meets your insurer’s defined definition. 

Critical illness cover can:

  • Pay out while you're still alive following a serious medical diagnosis.
  • Cover a wide variety of illnesses and disabilities, from cancer to multiple sclerosis and loss of speech. But exclusions apply to each policy, so always check the conditions you are covered for in your policy documents.
  • Make up for a sudden drop in your income, ensuring bills can still be paid if you need to leave work.
  • Support people with or without dependants, as you'll still be around to benefit from the lump sum.
  • Be used to cover multiple costs, including everything from household expenses to necessary property adjustments caused by an illness, such as the need to install wheelchair access.

Life insurance can:

  • Provide a one-off payment to your family if you pass away within the policy term. This is different to standalone critical illness cover, which pays out during your lifetime.
  • Be subject to certain restrictions. For example, a claim may be turned down if you pass away following direct involvement in criminality or failed to reveal an existing medical condition.
  • Come in different forms. You can choose level cover, where the premiums and amount covered are fixed. Another option is decreasing cover, where although your premiums are fixed, the potential lump sum reduces over the policy term, often in line with your circumstances.

How much does critical illness cover cost? 

No two critical illness policies will be the same, and the price you pay will depend on your personal circumstances. Critical illness premiums are generally lower the younger and healthier you are. However, along with your current health and age, they depend on other personal factors, such as your:

  • Family medical history.
  • Desired level of cover, plus the policy type and length.
  • Job type, and the level of risk it poses.
  • Lifestyle. For example, whether you're a smoker.

Can you buy critical illness cover without life insurance?

Estimating the financial impact of your death or a serious medical condition can help you determine whether critical illness or life insurance would be beneficial. Both products offer valuable protection under difficult circumstances. However, they’re ultimately designed with different purposes in mind.

Combining the two may prove more convenient and cost-effective if you’re planning to buy both forms of protection. However, your decision to buy standalone critical illness cover or a combined policy may ultimately come down to your family situation – and whether you need to provide for dependants after you’re gone.

Speak to an adviser if you’re unsure about the type of insurance that’s right for you – and always research prices and exclusions to ensure you have access to a policy that suits your needs.

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