Critical Illness and Life Insurance, how do you know which is right for you? More Than Money discuss the pros and cons and how it affects your monthly premiums.
In this article, we’ll take a look at whether you should buy Critical illness or. life insurance cover, or both. I’ll discuss the pros and cons and look at how it affects your monthly premiums. Critical illness vs life insurance which do you think is more important?
Life Insurance Only: The Pros
In a nutshell, Life Insurance pays out a one-off cash lump sum to your family if you die. What are the advantages compared to taking out a Critical Illness or Income Protection policy?
- Lower Premiums – Your monthly payments are going to be lower. Let’s face it, the chances of you becoming ill are significantly higher than the chance of you dying. You will pay less for Life Cover than Critical Illness or Income Protection cover.
- Tax-Free Lump Sum – Need I say more? Admittedly this also applies to Critical Illness or Income Protection, but it’s nice to know isn’t it? Lovely tax-free cash. Not for you unfortunately because, well, you know…
- Simple Claims Requirements – Firstly, you can be assured that the process will be a lot easier and less stressful for your family if they need to make a claim, certainly easier than if you have to make a claim against a Critical Illness or Income Protection Policy; where you’ll no doubt be faffing about with medical reports etc. For them, it will simply be a case of contacting the insurer, who no doubt will be sympathetic and helpful, and then send in the correctly filled in claim form, as well as the original death certificate and certified copies from the funeral company. Job done.
It’s always nice to start with the good bits, but every pro has its con, such as:
Life Insurance Only: The Cons
The cons are few and far between to be honest, other than:
- You Won’t Personally Benefit – I don’t want to be a Debbie Downer here but, obviously, you won’t enjoy the money in the event of a pay out. A Life Insurance Policy is something you take out for the benefit of other people; to lessen the financial burden on your family, not yourself. If I were you, I would take out the insurance, and then buy yourself something fancy to congratulate yourself on your totally selfless act.
- It’s Not For Everyone – At the risk of once again sounding a bit depressive, you might not need Life Insurance if you’re single and have no dependents. It’s really only going to benefit those you leave behind, so it would probably be better to have some kind of Critical Illness or Income Protection instead. On the flipside, I bet your house is lovely and quiet…no sticky handprints on the telly…no mother-in-law…what’s that like?
However, there is one BIG disadvantage to only having life cover that you will need to consider:
- What If Your Health Changes? – If you only have life insurance in order to protect your family in the event of your death but then your health changes for the worse – which, less face it, is common as we get older, you may not be able to then buy a critical illness policy.
Critical Illness Cover: The Pros
I’ve clubbed Critical Illness Cover and Income Protection together. Although there are differences in the policies, the pros and cons to both are the same.
Some of the advantages are:
- You’ll Get To See It! – I’m not suggesting that becoming too ill or injured to work is a great way to get your hands on some extra cash. What I am saying is that both of these types of insurance will directly benefit you. So you’ll be able to decide how it is spent.
- Tax-Free Pay Out – As with a life insurance policy your pay out is Tax-Free. There’s not a lot else to say here other than, it’s awesome.
You Can Spend It How You See Fit – Unlike a life insurance payout you’re going to be around to spend this. So there’ll probably be pre-existing conditions in the form of a will etc on how life insurance is spent; with a critical illness payout there isn’t. Now of course the sensible thing is to use that money
- for monthly bills,
- mortgage payments,
- maintaining your family’s lifestyle
- recover after being diagnosed with a critical illness
Or anything you might need in order to recover after being diagnosed with a critical illness. Like a trip to the Caribbean. The choice is yours.
The advantage of being alive when you receive your money is huge and may have made your mind up. However there are some disadvantages to taking out a Critical Illness or Income Protection Policy over Life Insurance.
Critical Illness Cover/Income Protection Cover: The Cons
- Higher Premiums – In short it is cheaper to die than it is to have a critical illness. With Critical Illness you may need to be covered for loss of income, costs of treatment and home care. This will be reflected in your monthly premiums which are higher than for a Life Insurance policy.
- Do You Meet The Definition Of ‘Too Ill To Work’? – Again, dead is fairly self-explanatory, but ‘critical illness’ or being ‘too ill to work’ have much broader definitions. Different policies and insurers will cover different conditions and have different criteria when it comes to diagnosis and proof…which brings us to our next co
- It’s Harder To Get Paid – Compared to making a claim against a Life Insurance Policy, claims against a Critical Illness or Income Protection policy are a slightly more drawn-out process. Depending on the condition or injury in question there’s going to be more paperwork to deal with to prove that you are too ill to work anymore and receive your pay out. However, once you have all the information that your insurance company needs and they have processed it, you should receive your money fairly quickly.
Hmm, decisions, decisions. Personally I recommend having both – life cover and one form of illness cover. That could be critical illness or income protection. Having both policies protects you and your family in either eventuality. Cliché as it sounds, you can’t put a monthly premium on peace of mind.
There are insurers who offer a combination of the two:
Why not try combined Critical Illness and Life Insurance?
Like it says on the tin, this type of insurance pays out a tax-free lump sum; if you die OR if you get a critical illness. These policies can be a more affordable alternative to buying two separate policies. However, you’ll only get one payout. Your life cover will end if you claim for critical illness.
Despite the lower premiums associated with the combined policy, which is really the only advantage. I would still recommend taking out two separate policies.
Advantages of Taking Out Separate Policies
- You’re Covered For Both – It’s obvious, but, you get to keep your life cover; even if you become critically ill or injured and make a claim. As a result your family will still receive a payout when you die.
- Flexibility – You can buy your policies at separate times when it suits you. If you are single you can purchase Critical Illness or Income Protection. Then if you marry and have children you can buy Life Insurance. And some screen wipes for the TV screen…and a bed for the spare room for when the mother-in-law stays…
In Summary
So in summary which one should you buy, Critical illness or life insurance? Well it depends on your circumstances and whats right for you. Give our team a call and we will be more than happy to help.
