While the two may sound similar, they are in fact very different, particularly in relation to the severity of the illness. Also, one is free and the other one is not.
In its simplest form, this is a free extension to your life cover that comes as standard with most UK life insurance policies.
It means that the policyholder can receive their life insurance pay out early if a medical professional confirms that they have less than 12 months to live as a result of a terminal illness.
This can be useful if the family would like to make use of the money ahead of the policyholder passing away, be it to clear debts to ensure the family is financially stable, to pay current bills that may mount up due to the person not being able to work anymore or to make the most of the time they have left.
Alongside income protection insurance, many people also choose to take out a critical illness policy that will pay out a lump sum should they be unable to work due to illness.
It can be purchased as a standalone policy or included in your life cover policy. Children’s cover is also often included. As a general rule, critical illness cover costs five to six times more than life cover, as there is more chance of us suffering a serious illness (and surviving it) than we are to die during our working lives.
These policies will pay out upon diagnosis of a predetermined list of illnesses. They are designed for illnesses where the policyholder is unlikely to die but could suffer serious impact on their health and quality of life in the future. Common illnesses include heart attacks, strokes, cancer, loss of sight, deafness or liver and kidney failure.
Some policies also offer partial payments, typically 25% of the cover amount, for less serious illnesses such as early stage cancers.
If you would like to talk to an adviser about your insurance policies, please contact Finura.
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