When someone takes out life insurance and dies during the duration of the policy, their chosen beneficiaries will receive a lump sum. This can protect against a loss of income or the taking on of debts, such as a mortgage or any other costs.
Although life insurance and critical illness cover can seem similar, critical illness cover is more focussed to help with financial issues that come into effect if the policy holder is diagnosed with an illness. This usually consists of critical illness within a list of conditions. Both are worth considering if you have any dependants who rely on you financially.
How does Critical Illness Cover work?
If you are diagnosed with an illness that’s listed in the conditions covered by your critical illness policy, then your insurance provider will pay out a tax-free lump sum. Typically, the policy will then end once the pay-out is made. If you pass away after the pay-out, the policy is no longer valid.
Are you looking to get a combined policy for life insurance and critical illness cover? Then don’t panic, this is also possible. It isn’t one or the other, the choice is yours. Many insurance providers offer critical illness cover as an option within their life insurance policy. However, it’s important to remember that your critical illness cover will only pay out if you have an illness that is listed as one of the critical illnesses on your policy.
How to know which one you need?
To simply if for you, we’ve put points together on how each type of policy can benefit you. This should help you work out which one you need, whether it’s just one or the other, or both.
| Life Insurance | Critical Illness Cover |
| Mandatory for anyone who has a mortgage loan | Useful to have even if you don’t have anyone who is financially dependent on you |
| Ideal if someone is financially dependent on you | Offers you financial freedom in the event you are diagnosed with a critical illness |
| Often used to cover funeral costs | Can be used to pay off debts or private medical care |
| Payout can be gifted to a loved one |
So, what’s the difference?
Critical illness cover and life insurance serve different purposes. Critical illness cover pays out a lump sum upon a diagnosis of a health condition defined within the terms of the policy, while a life insurance policy pays out if the policy holder dies within its duration.
