Life insurance vs critical illness cover

It's never nice to think about it, but death or illness can happen at any stage in life. Rather than worry about 'what ifs', now could be the time to start thinking about having protection in place should anything happen.

Life insurance and critical illness cover are two popular forms of financial protection for unforeseen circumstances. While they are similar, they serve different purposes for supporting you and your family and/or loved ones. Let's take a look at some of the main differences between the two.

How does life insurance work?

Life insurance predominantly works in two ways, as a term policy, or as a whole of life policy.

With term life insurance, the policy is set to cover you for a specified amount of time, for example, 25 years. If you die during this time, the policy pays out as normal. However, if you outlive the term, the policy expires, and you won't be able to claim on the policy. Because of this term cover is usually cheapest.

There are three levels of term cover:

• Level term cover has a fixed premium rate during the policy. The payout value also remains the same throughout.
   

• Decreasing term cover is typically used to cover a repayment mortgage and other debts. The payout value decreases over time as you make payments towards the amount owed. The premium usually stays the same over the time of the policy, but is generally cheaper than level term cover. 
   

• Increasing term cover is designed to protect the payout from losing value due to inflation. In doing so, the amount increases over time, as do the premiums.

Whereas whole life insurance lasts for the rest of your life, as long as you continue to pay your monthly premium. The policy will pay out regardless of when you die, which gives you and your loved one’s reassurance that they will be supported if anything happens.

You can also purchase these types of cover as a joint policy. That way, both you and your partner or spouse can be covered under one policy, saving the need to buy separate policies. This can sometimes be cheaper than having individual 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 critical illness cover?

Critical illness cover is designed to provide financial support if you are diagnosed with a serious illness or disability. During this time, you may be unable to work and therefore support your family, which is where the cash lump sum provided could help replace any lost income.

It can be bought as a standalone policy or as an add-on to life insurance policy.

Your insurer will payout a lump sum payout providing you are diagnosed with an illness covered by your plan. Each insurer will have its own guidelines on what conditions are eligible for a payout.

Typical illnesses and disabilities that are cover include:

How does critical illness cover work?

Similar to term life insurance, you choose how long you want the policy to last. If you suffer from a critical illness during the term, you will receive a payout.

Cover can be purchased in two forms:

• Level cover, where you decide the amount you want to be insured for, and the payout remains fixed regardless of when the claim is made, as long as it falls within the terms of the policy. The premiums for this policy also remain fixed. 
   

• Decreasing cover, where the payout reduces over time. This type may be beneficial if you have a mortgage or debts that decrease over time. The premiums for this policy are fixed, but may be cheaper than level term cover.

Life insurance pros and cons

Critical illness pros and cons

Another consideration is if you share finances with your partner or spouse, they may still be able to cover expenses if you are ill as you may recover. On the other hand, if you were to die, they would permanently lose your income.

In some instances, you may want to consider combining both policies, that way you have added protection for either scenario. However, if the policy pays out for a critical illness, it won't pay out in the event of your death. Therefore, some customers opt to have both plans running simultaneously.

If you're still unsure which policy is right for you, please speak to one of our advisers. They can provide friendly advice based on your circumstances to help you make an informed decision.