The Difference Between Life Insurance and Critical Illness

Written By: Fred Madsen on February 6, 2010 No Comment

Both life insurance and critical illness cover have a few variations on their standard policies. Usually these differences come when you compare policies at different insurance companies. There are a few clear-cut differences between the two kinds of insurance and they will be discussed here.

In its most basic form, life insurance is a form of coverage against a policyholder’s life. The life insurance company will judge the risk of you dying and will agree to pay out a lump sum if you die during that period.

If the policyholder is to die during that term then a lump sum payment will be given to those that are named as beneficiaries in the policy. It is usually used to protect mortgages or other debts so that family members do not have to deal with these burdens after the policyholder dies.

Deciding the amount of coverage will be the first task when you’re looking for life insurance. If you want to cover the cost of your mortgage you will simply look at how much your mortgage is set at. Many mortgage life insurance policies have an option that will allow for the premiums to decrease because the total amount of your mortgage is also decreasing.

With life insurance, the total amount that is purchased is in direct proportion to the amount that you will pay each month in premiums. And since life insurance is based on the principle of life expectancy, if you are a young person your life insurance will be quite inexpensive because the chance of dying is very low.

With your average term life insurance policy, no payouts will be made if you are to survive the term. Some policies, such as whole life insurance, will have a payout at a certain age but these can be quite expensive because the policy is acting as an investment vehicle.

The main difference with a critical illness cover policy is that the policyholder will receive the benefits rather than a beneficiary. Of course, this is only if the policyholder is diagnosed with one of the critical illnesses listed by the policy. The payment will be given out in a lump sum and should help the policyholder find medical attention, get a new job, or accommodate a home for the ill person.

If you get a critical policy you have to calculate how much you think you’ll need to survive on if you are unable to work for an extended period of time. Just like life cover policies, the amount you want to be paid out is directly in proportion to how much your premiums will cost.

You will have to decide which critical illness you want covered for, as this will likely be different for each provider that you contact. If you complete the entire term without any diagnosed illnesses you will not receive any benefits. In that way, it is very similar to a life insurance policy. Both of these policies are cost effective ways to protect the financial interests of your spouse and your family.

Learn more about Critical Cover. Stop by Fred Madsen’s site where you can find out all about breast cancer & critical illness cover.