Life insurance doesn’t just provide your family with financial protection when you die. It can also give them support and protection if you’re diagnosed with a life-threatening illness, like cancer or heart disease. If you already have life insurance and aren’t sure whether you should get critical illness cover as well, keep reading to see which of the two types of cover provides the most benefit to you and your family.
What is life insurance
Life insurance is a contract between you, or your beneficiary if you die in an accident, and an insurer. The insurer agrees to pay a lump sum (an amount) to a named person (your beneficiary) when you die. It’s that simple, but there are some key points you should consider when looking for cover: Who pays first: Life insurance takes priority over critical illness cover in most circumstances; it’s best to make sure that if someone has life insurance then they don’t need critical illness cover as well. In other words, your family should be able to access at least some of their money when it matters most.
How does it work?
Life insurance is designed to replace your income after you die. Without life insurance, your family will have to pay for your funeral costs, and other outstanding debts that you may have, out of their own pocket. Life insurance also provides a safety net for those looking to invest in property or start up a business by ensuring that those investments won’t be at risk in case you die. One of life’s certainties is death – so do you need a plan to ensure that if anything were to happen, your loved ones would still be taken care of? The answer is probably yes!
Who should get it
Unless you are young, healthy, and/or own a house, you are likely to need life insurance. People who have dependents—such as children—should definitely have life insurance. An additional category of people who would benefit from life insurance is those with critical illnesses such as cancer or diabetes. There are actually two kinds of life insurance if you want a more in-depth comparison, term and permanent life insurance. This is how they differ with term (sometimes called pure) life insurance, you pay your premium for a specific time period, and coverage is over after that without renewal. Permanent coverage lasts for the remainder of your life but has a larger initial cost because you must purchase it for your entire life, unlike term insurance.
How much do they cost?
It’s easy to get confused by life insurance policies because there are so many different terms and features. The good news is that once you understand a few basics about life insurance, it’s possible to make sense of things. For example, costs vary widely depending on your age, health (and whether you smoke) and how much cover you want. In general though, younger people generally pay less for a policy—but not too much less: A 25-year-old might pay about 10% of his or her annual income for term life insurance but someone in their 50s could be paying more than twice that amount.
What if you can’t afford one
If you find life insurance expensive, take a look at critical illness cover. It might sound like life insurance, but it’s not. It is designed to pay out when you are diagnosed with a serious illness like cancer, heart attack or stroke, meaning no one in your family will have to worry about paying for your medical treatment if that happens. Best of all it’s available at competitive rates from just £20 per month (from Aviva). But do make sure you get life insurance as well if you can afford it – otherwise your loved ones will have to rely on state support should anything happen to you. Not only could that be financially difficult for them but also cause unnecessary stress during what is likely an already difficult time.
Should I get critical illness cover as well?
It’s not uncommon for people to think of critical illness cover as a replacement for life insurance. In reality, it only replaces certain types of losses. If you get life insurance or terminal illness cover then you don’t need critical illness cover as well. However, there are some exceptions. People with pre-existing medical conditions may want to take out critical illness cover instead of life insurance because it won’t affect their premiums like life cover would. Alternatively, if someone wants both critical illness cover and life insurance they will have to pay two separate premiums but can claim on both policies at once if either of them are triggered.
How do I choose the right policy for me?
When you buy life insurance you may be offered two types of cover: life insurance, which pays out if you die; and critical illness cover, which only pays out in certain circumstances. It’s important to consider how many dependents or family members you have who rely on your income, as well as how much money you want to leave them. Depending on your financial situation (for example, do any of your family members suffer from a life-threatening illness?), it could make sense for you to buy both life insurance and critical illness cover. Read more…
Find out more about Life Insurance Database: What is it and why do you need it?.