There are obvious differences between life and critical illness insurance. Yet they also share very common principles in the way in which they work. It is perhaps unsurprising, therefore, that some insurers offer a combined, two-in-one package of both life and critical illness insurance. The benefits of such a combined policy might prove a financial boon to both you and your family, so it is worth briefly comparing how the two forms of cover work in tandem.
Both types of insurance have at heart the concept of risk to the individual – on the one hand of dying; and on the other, of being diagnosed with an illness. In each case this is the insured risk. In return for payment of a regular monthly premium, the insurance policy then guarantees the payout of a predetermined, single lump sum benefit.
In both cases, the most common model is a “term insurance” form, in which the defined risks are insured for a given number of years (the “term”). If you survive the insurance term, or if you survive it without being diagnosed with a critical illness, the insurer pays out nothing at all.
In both cases, you choose the level of cover that is most suitable for your needs. For many individuals, this is generally a balance between the estimated financial security required in the event of death or fatal illness and whatever can be afforded in terms of the monthly premiums payable.
The most obvious difference, of course, lies in the nature of the risks insured. In one case, it is the policy holder’s life; on the other, it is the risk of that policy holder being diagnosed with a critical illness;
The death of the policy holder during the insured term, naturally, requires no further definition. Just what is a “critical” illness, however, typically varies quite widely from one insurer to another. Each insurer publishes their own list of those illnesses and medical conditions covered by CI insurance, so it is obviously important to study carefully just what is offered by any policy in which you are interested;
In the event of a claim under a life insurance policy, the insured benefits are paid out to whoever you named as the beneficiary. In the case of critical illness insurance, the benefit is paid directly to you, the policy holder. Because of their close association, however, both life and critical illness insurance might be seen as playing their respective parts in securing your family’s future financial stability;
Combining life and critical illness insurance
The evident advantages of combined life and critical illness insurance cover are twofold: the financial fallout from two major risks might be averted. For as long as the insurance is in place, you and your family are reassured that if you fall prey to a critical illness (as defined in the policy documents), or even die, the level of cash benefit which you have chosen becomes immediately payable.
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It should be borne in mind, however, that in the terms of such combined policies, only one potential payout is available. In other words, if you have claimed the insured benefit of the critical illness insurance no further benefit is typically payable under the combined policy in the event of your subsequent death.
David Thomson is Chief Executive of BestDealInsurance a completely independent specialist broker dedicated to providing their clients with the best insurance deal.