Do I need life insurance or critical illness insurance?

Choosing the right insurance can feel overwhelming, especially if you’re not sure where to start. This guide breaks down two essential types of cover - life and critical illness insurance - explaining what they do and helping you decide which one is right for you.

Contents

• What’s the difference between life insurance and critical illness insurance?
• Which type of insurance do I need?
• Can I take out both life insurance and critical illness insurance?
• How do the costs compare?
• Choosing the right cover for you

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

What is Life Insurance?

Life insurance is designed to provide financial support to your loved ones if you pass away during the term of the policy. It pays out a lump sum (or, in some cases, a regular income) to the people you choose, helping them cope financially at a difficult time.

There are many benefits of life insurance, the main one being the money can be used for anything your family needs, such as paying off a mortgage, covering everyday living costs, funding childcare or education, or easing other financial pressures. Life insurance is often taken out to protect the people you love and give peace of mind that they will be financially secure if the worst happens.

What is Critical Illness Insurance?

Critical illness insurance pays out a lump sum if you are diagnosed with a serious illness covered by the policy, such as cancer, a heart attack or a stroke, and you survive for a specified period. Unlike life insurance, it provides financial support while you are still alive.

The payout is there to help take financial pressure off you and your family at a difficult time. It can be used to cover everyday bills, replace lost income, pay for treatment or recovery costs, reduce debts, or simply give you the breathing space to focus on getting better. Critical illness insurance is designed to offer reassurance and stability when your life is unexpectedly turned upside down.

Which type of insurance do I need?

Although life and critical illness insurance are quite similar, they are designed to cover different things. Life insurance is helpful if you have a family who are financially dependent on you; perhaps a partner or children. This is because the life insurance payout can be used to support them when you’re no longer around. Often people take out life insurance to cover their mortgage, providing peace of mind that any remaining debt will be paid off, should the worst happen. This helps to reduce the financial stress faced by the family at an already emotionally stressful time.

Life insurance can also be used to cover the costs of your funeral, or you may decide that the payout should go to a loved one as a gift.

Critical illness insurance on the other hand is a great product even if you have no financial dependants. The product pays out if you fall seriously ill, which in many cases may require you to take time off work for treatment and recovery. Depending on the financial support you would receive from your employer, you and your family may see a drop in income. Could you comfortably cover all of your outgoings in this situation? If the answer is no, then critical illness insurance might be the answer.

Critical illness insurance is a product that delivers financial freedom when you need it most. Freedom to take time off work while you recover, freedom to pay off your debts so your family doesn’t need to, and freedom to pay for private medical treatment. For this reason, critical illness insurance suits almost everyone who wants financial protection from illness.

Can I take out both life insurance and critical illness insurance?

Yes, you can. In fact, many critical illness policies are purchased alongside life insurance. These two types of cover are often combined into a single policy, which will pay out either if you fall seriously ill or if you pass away. It’s important to note that the policy makes only one payment, and once a claim is paid, the policy ends. For example, if you receive a payout for a critical illness, there will be no further payment upon death.

Some people prefer to take out two separate policies - one for life insurance and one for critical illness cover. This approach offers greater flexibility. For instance, you might choose a life insurance policy to cover your mortgage in the event of death, while holding a smaller critical illness policy to provide temporary income support if you were to fall ill. Separate policies can provide an additional layer of protection and peace of mind for you and your family.

How do the costs compare?

What is the cost of life insurance?

The cost of life insurance is generally less expensive than critical illness insurance. This is because the likelihood of a claim being made on a life insurance policy is lower compared to a critical illness policy.

The cost can be influenced by factors like your age, health, lifestyle, and the amount and length of coverage you choose. Taking steps to improve your health, such as quitting smoking, maintaining a healthy weight, and exercising regularly, can help reduce the cost of your life insurance payments.

What is the cost of critical illness insurance?

Critical illness insurance tends to be more expensive than life insurance because the risk of making a claim is higher. The more likely you are to claim, the higher the payments will be.

There are ways to manage the cost, such as reducing the amount of coverage you select or choosing a shorter coverage period. Some people find it beneficial to have separate life and critical illness policies for greater flexibility.

As with life insurance, improving your health and lifestyle can help lower the cost. A healthier lifestyle reduces your risk of serious illness, which can make your insurance more affordable.

Choosing the right cover for you

Choosing the right cover can feel complicated, and everyone’s circumstances are different. Speaking to an experienced adviser can help you understand your options, compare policies, and make the choice that best protects you and your loved ones. Here at LifeSearch we search insurers big and small for the right cover to protect your loved ones. Get in touch today for fee-free advice and quotes.

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