Life and Critical Illness Insurance

‘Kelly’s Know-how’ – August 2020 edition

Life and critical illness insurance

This month we are going to concentrate on another type of protection, namely life cover and critical illness cover, looking at the difference between the two, and the reasons why they are important.

Many people naturally think that they do not need or want life or critical illness insurance. But remember, an insurance is a means for us to achieve our objectives of taking care of ourselves or our family and dependents. It’s all about our family and our lifestyle.

So what is life cover?

A life cover is an insurance written on your life. It will pay a lump sum of money to your family/beneficiaries if you die within the term of the policy. This money could be used to look after your family financially, pay off debts and finance your children’s education to name just a few.

If you have small children, dependent relatives, financial commitments such as a mortgage on your house, it’s time to think about getting life cover if you aren’t already covered. Ask yourself these questions: “Who would look after your loved ones if you weren’t there? What would your family do if your home were to be repossessed by the bank?”

You might think that it won’t happen to you, but, as has become even clearer this year, the future is incredibly hard to predict. No-one has a crystal ball. This is why it is best to be protected rather than be sorry when it’s too late.

The cost of the premiums for life cover can be quite cheap and depends on the amount insured, term of policy, age, health, lifestyle, smoker status… The younger and healthier you are, the cheaper the premiums, so starting early can give you the most cost-effective cover.

How is critical illness cover different?

On the other hand, critical illness cover, as the name suggests, is an insurance that covers a number of serious illnesses as listed on the policy. Some of these illnesses covered could be stroke, heart attack, certain types and stages of cancer, and conditions such as multiple sclerosis. 

Critical illness cover will pay out a lump sum if you are diagnosed with a specific critical illness as contained in the policy conditions, within the term of the cover. This lump sum could be used to pay normal expenses, clear debt, or buy medical equipment to make your life easier.

It provides real peace of mind. In the end, no one is immune from these bad illnesses.

This type of policy is normally more expensive than life cover, as people are statistically more likely to fall ill than die prematurely. The premium depends on how much cover you need, your age, medical history, lifestyle and other factors. If you have a pre-existing medical condition, it is likely to be excluded from the policy.

Which cover do I need? 

Life and critical illness cover can be taken out separately as standalone plans or could be taken together.

It is important to understand the difference and to be careful about what you choose.

If you choose Life AND Critical illness cover, it means that if you are diagnosed with critical illness, it will pay out a lump sum. And if later if you die within the term, the policy will pay another lump sum.

If you choose Life OR Critical illness, it means that it will only pay one lump sum on whichever event happens first.

The amount of cover can be level (staying the same), increasing to match inflation or decreasing to match your mortgage/financial commitment amount.

It’s very easy to get covered, you can go online to comparison websites or to specific insurance company websites.

Or if you are not sure about exactly what you need, you may benefit from speaking to a professional financial adviser, who will be able examine your specific situation and search the whole market on your behalf for covers that are suitable for you and your specific situation or needs. Lucent can help you choose the most appropriate cover – just get in touch if you would like to talk through your options.

What’s the alternative?

  • Do nothing and say: it won’t happen to me. But if it did, I/my partner/family would be able to cover the related costs.
  • Ask friends and family for help.
  • Hope that state benefits are going to be enough.

Thanks for reading. I’ll be back next month with some interesting tips on maximising your tax benefits!