Does Life Insurance Payout for Critical Illness?

Have you ever wondered what would happen if you became too ill to work? Who would take care of your bills and expenses, or support your family in tough times?

If you were to fall severely ill, you may need doctor visits, hospital visits, and time off from work for treatments. This could compromise your income, and without a steady income, it can be difficult for families to make ends meet. Illness can quickly deplete savings and leave future plans uncertain.

Both life and illness insurance can provide peace of mind in the event of the unexpected. In this guide, we'll explain what each policy can cover, their benefits and how to determine which policy may be right for you.

Understanding life insurance

Life insurance can be one of the easiest ways to help protect your family/loved ones financially. It's a contract between you and the insurer, where you pay a premium each month. The insurer then pays a cash lump sum to your family and/or loved ones upon your death.

This money may help to cover things like funeral costs, debts, mortgage payments, and other day-to-day expenses.

The most common types of life cover are term life insurance and whole life insurance.

Term life insurance provides cover for a specific number of years. While it typically offers cheaper premiums, the policy only pays out if you die within the term. Premiums are fixed unless you can increase the policy.

Whole life insurance is a type of permanent policy that provides cover for the entire life of the policyholder. Though it's usually more expensive than term policies, it offers greater peace of mind. Premiums and the payout value are fixed, unless you opt for an increasing policy.                                                                                                                                                                                                                                                                                                                                                                                                                       

Another type is joint life insurance, which covers two people, usually a couple or as business partners. It can work out cheaper than buying separate policies.

Please note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums your cover will stop, your policy will end, and you will receive no benefit. If you have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.

What is income protection?

Income protection provides financial support in the event that an individual is unable to work due to illness or injury. It can help cover lost wages, medical bills, and other expenses while you are unable to work.

Full term income protection typically pays out a regular benefit until you’re able to return to work or until the policy expires.

Limited term income protection, or ‘budget’ income protection pays out for a specific amount of time, usually 1, 2 or 5 years in the event of a valid claim.

The amount of cover and length of the policy will depend on the individual's needs and budget. Generally speaking, most policies will limit the policy benefit amount to 65% of your gross annual income.

With income protection, you do not have to meet a condition on a pre-defined list, instead you can make a claim if a doctor signs you off work. Common reasons for claiming include:

• Musculoskeletal conditions
   

• COVID-19
   

• Hip/Knee
   

• Mental Health
   

• Bereavement

What if I have a pre-existing condition?

Even if you have a pre-existing condition, may still be possible to get life insurance, income protection or critical illness cover. However, each insurer has different policies regarding pre-existing conditions, and they can influence your premiums, options for cover, and eligibility.

In most cases, your insurer could charge you a higher premium due to the increased risk associated with your condition. This is particularly common for critical illness policies.

Some policies may also include exclusions for specific conditions, meaning that if you were to suffer from a condition that was previously diagnosed, it would not be covered by the policy.

If your condition is minor and you are in good health, it shouldn’t have too much impact on your cover.

Which policy is right for me?

Generally speaking, choosing a policy should reflect your individual needs and budget. If you are looking for protection against illness, then income protection or critical illness cover may be the best option.

If you're looking to protect your family in the event of your death, then life insurance will be your preferred route. However, it may be possible to also add critical illness to an existing life insurance policy. This way, you can get the financial protection you need without having to take out a separate policy. To do this, you will need to contact your insurer to see if it is possible.

Remember: No matter which type of policy you choose, it is important to read the terms and conditions carefully before signing up. This will ensure that you are getting the right cover for your needs.

How much cover do I need?

When deciding how much cover you need, it is important to consider your current financial situation and any potential future expenses. You should also take into account any financial commitments you have, such as dependants, a mortgage and other debts.

Put simply, both types of cover should reflect your intentions for the future. You may want critical illness cover to protect yourself until retirement, whereas life insurance may be needed for longer.

It is also important to consider any potential medical expenses you may incur if you become seriously ill or injured. This could include the cost of home care, private treatment, and other long-term care costs.

When selecting a policy, consider:

• The amount of cover required
   

• Duration of the policy
   

• How much cover you can afford
   

• Your household income
   

• Financial obligations you may have

If you are unsure about your options, speak to one of our advisers. They can provide expert advice on which product(s) may be best for your circumstances.