Do I choose Terminal Illness or Critical Illness Cover?
Life Insurance - not exactly the most interesting topic at the forefront of everyone’s mind. The main element of the policy namely ‘life insurance’ is easy to understand, but there is confusion over the difference between the additional benefits of Terminal Illness Cover and Critical Illness Cover. Are they the same?
Sadly, a large number of people often don’t have the difference explained to them and assume they are covered for Critical Illnesses where as in fact they are only covered for Terminal Illness, which is vastly different.
Terminal Illness Insurance just pays the life insurance out early if the policyholder is expected to die within 12 months. It is a form of insurance that is often automatically included in a life insurance or mortgage life insurance policy at no extra charge.
Where Terminal Illness Insurance is included, the policyholder has the benefit of knowing that if he/she is diagnosed with a serious illness and is expected to die within the next 12 months, then the policy will pay out the life insurance amount immediately upon diagnosis rather than waiting for the policyholder to pass away. Whilst this offers peace of mind to know you can put your finances in order yourself, all it really does is speed up the payout.
This form of insurance must not be confused with Critical Illness Cover, which is a fairly common mistake made by a large number of people. Terminal Illness Insurance only pays the benefit where the life expectancy is less than 12 months at diagnosis whereas Critical Illness Cover would typically make a lump sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed in the insurance policy and unlike Terminal Illness Cover where there is no additional charge on premiums, Critical Illness Cover in all cases is offered for an additional premium by the insurance company.
Critical illness cover was originally designed to pay for:
• cost(s) of care and/or treatment
• recuperation aids
• outstanding financial liabilities, typically a Mortgage
• unpaid respite time, whilst recovering from ill-health
Critical Illness Cover is suitable for those concerned they may not be able to meet their financial commitments or maintain a reasonable lifestyle if diagnosed with a critical illness.
If the policyholder is diagnosed with a medical condition listed within the policy document, the insurance company would make a cash lump sum payment to the policyholder, regardless of their life expectancy. The most common illnesses included are cancer, heart attack, stroke traumatic head injury, total permanent disablement. Most insurance companies include the conditions named above, but for the diver it is important to find an insurance company that will not exclude a claim just because they were enjoying their activity when it occurred.
Consideration should also be given to the fact that a large number of people will recover following diagnosis of a Critical Illness, which will result in a claim, and the sum assured being paid. They may continue to lead a long, healthy lifestyle whilst knowing their mortgage liability or other financial commitment or burden is now taken care of, due to the lump sum payment. Therefore, they may not be required to continue working, or will have the option to reduce their hours, or even change their occupation, to suit their new lifestyle.
Assume the same scenario was to occur to a policyholder with Life Insurance policy that only includes Terminal Illness Insurance. If they were to make a recovery following diagnosis of a medical condition and the life expectancy was greater than 12 months, then the policy would not pay anything. Regardless of their medical condition or health after diagnosis, they would still have the liability of their mortgage, or other financial liability meaning they may have to continue working or may face potential financial hardship if unable to work.
Therefore, if you are considering life insurance for the first time, or perhaps looking to review your existing policy, then it is important that you fully understand the difference between Terminal Illness Cover and Critical Illness Cover. As explained above, both options provide valuable benefits at different stages of the policy and your life. The consequences of misunderstanding one for the other could be very upsetting for you and your loved ones in the future.