What if I don't know which cover I need?
Life Insurance vs Critical Illness Cover: What's the Difference?
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This guide provides general information only. It is not financial advice or a personal recommendation and does not take account of your individual circumstances.
Quick answer
Life insurance and critical illness cover insure different events. Life insurance is designed to pay on death while the policy is in force. Critical illness cover can pay a one-off lump sum while the insured person is alive if they are diagnosed with a condition covered by the policy and the policy's definition is met. Neither is automatically a substitute for the other.
Key figures
- the core event covered by life insurance
- Death
- the core trigger for critical illness cover, subject to the policy definition
- Covered diagnosis
- a common benefit form for both, although the insured event is different
- Lump sum
What is the main difference?
The difference is the event that triggers the benefit.
Life insurance is designed to pay after the insured person dies while the policy is in force.
Critical illness cover is designed to pay while the insured person is alive after a diagnosis that is covered by the policy and meets the policy's definition.
That means the products solve different financial problems.
What can life insurance help address?
A death can remove income or unpaid work from a household while debts and living costs continue. A life insurance benefit can provide money after that death.
The exact use of the money depends on who receives it and the household's circumstances. Life insurance explained sets out the cover types, terms and trust arrangements involved.
What can critical illness cover help address?
A serious diagnosis can create costs while the insured person is still alive. A critical illness benefit is normally a one-off lump sum, which can be used in any way the recipient chooses.
The important limitation is that being seriously unwell is not enough by itself. The condition must be covered by the policy and meet the required definition. Critical illness cover explained goes through those definitions in more detail.
Is critical illness cover the same as income protection?
No.
Critical illness cover normally pays a one-off lump sum after a qualifying diagnosis.
Income protection can pay a regular income when illness or injury leaves someone unable to work and the policy's definition of incapacity is met.
The trigger, payment pattern and policy definitions are therefore different.
Can life insurance and critical illness be combined?
Some policies can include both benefits in one arrangement, while others are separate policies. How a combined policy behaves after one benefit is paid depends on its terms.
That detail is important because a combined arrangement should not be assumed to provide two completely independent payouts.
Which one is more relevant?
There is no universal answer. The starting point is the financial event being considered:
- death creates one type of financial gap;
- a serious diagnosis while alive creates another;
- inability to work because of illness or injury creates another again.
Existing savings, workplace benefits and other policies can also change the size of each gap.
Questions worth comparing
- Which event triggers a payment?
- Is the benefit a lump sum or regular income?
- What definitions must be met?
- How long does the cover last?
- Does an existing workplace scheme already cover part of the risk?
- If benefits are combined, what happens to the remaining cover after a claim?
Frequently asked questions
No. Life insurance is designed to pay on death while the policy is in force. Critical illness cover can pay while the insured person is alive after a covered diagnosis that meets the policy definition.
Yes, they can be arranged separately or in some combined policies. Combined-policy terms vary, so it is important to check what happens to the remaining cover after one benefit is paid.
Not simply because you cannot work. Critical illness cover depends on a covered diagnosis meeting the policy definition. Income protection uses a different trigger based on incapacity for work under the policy terms.
Sources
Related questions
Need advice about your own circumstances?
General information can't take account of your individual circumstances. If you'd like personalised advice, you can speak to an adviser.
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