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What’s the difference between critical illness cover and life insurance?

Many people choose to leave something for loved ones should something happen to them. However, there are many ways to do this, with different products offering protection in different circumstances.

Two of the more popular ones are life insurance and critical illness cover. While they are in some ways similar, there are key differences you need to understand if you’re considering either. So, what are the differences exactly?

Life insurance

A life insurance policy pays cash to a beneficiary should you die while you are under contract. This money can then be used for almost anything.

Generally, it is either used to ensure that financial obligations like mortgages can be paid or to provide financial assistance due to a loss of income. However, the downside to life insurance is that it only pays out if you die, without any provision for loss of income while you are alive.

Critical illness cover

Critical illness cover, on the other hand, will pay a cash lump sum if you fall foul of any of the illnesses included on your policy. Much like life insurance, the cash can be used for anything and is often used to replace lost earnings as a result of being unable to work.

Some policies can include clauses that cover terminal illness diagnoses, such as if you are given a set amount of time to live. However, they will not pay out anymore when you die.

Could I get both?

There is nothing stopping you from having both critical illness cover and life insurance. Some insurers may offer the different types of the cover into one integrated package, which may allow you to get a better rate than having them separately. However, this isn’t a given, so it’s always worth checking what’s on the market first.

Related guides

Endowment Policies

Endowments are an old-fashioned type of investment, originally created to pay off mortgages. As pay outs from life policies are tax free, the idea was to build investments within the policy for the tax benefit.This was the only tax-free investment you could make back in the 80s, but since then ISAs have evolved and replaced endowments. As a mortgage repayment vehicle they failed, as the expectations of investment growth in the 80s (high inflation=higher investment returns) did not continue into the late 90s and beyond, making them an unreliable and expensive product.No one should now be buying an endowment. It ties up your savings and is an expensive form of life insurance. The usual alternative is to have separate life insurance and separate ISA savings.

Life Insurance Jargon Buster

If you have a family and financial responsibilities, you’ll likely want to take out a life insurance policy. A good life insurance policy can affordably provide you with peace of mind during your life and offer your survivors financial support after your death.But even if you’re familiar with the basic premise of life insurance—premiums paid monthly for a lump sum payment or income following your death—you may find the process of seeking out a specific policy daunting. There are a range of life insurance products available, covering different eventualities and offering different levels and types of payout. But if you’re not familiar with the lingo used by insurers, these differences can be opaque. At worst, you can find yourself sold - and now paying premiums for - a policy that doesn’t suit your needs.In general, the better informed about the insurance market you are, and the more policies you compare in your search, the more likely you are the find the right life insurance policy for your personal and financial needs.The following glossary of terms you might encounter in your life insurance search and the types of policies available can help demystify the process.

High Risk Life Insurance

Old age, unhealthy habits, and dangerous hobbies can all make you ‘high risk’ in the eyes of life insurance providers. But this doesn’t mean you can’t find cover.People who are high risk will typically pay more for their life insurance premiums, however, there may be other ways to keep your costs down. Compare life insurance quotes today to see how much it will cost you to find cover.