Updated: July 26, 2019

Life Insurance Vs Critical Illness Cover

Life insurance or critical illness cover, which is right for you? We'll look at the key differences and how to decide which cover best meets your needs

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: July 26, 2019

Family protection is a key part of many people’s long-term financial plan. Failing to protect your family’s future and wellbeing if you were unable to work or, in a worst case scenario, you were no longer around could have a considerable financial impact in addition to the emotional aspect.

Life insurance and critical illness cover can both provide the peace of mind you need should something unexpected happen while protecting against very different risks.

This article explores the key differences between critical illness cover and life insurance, including:

Once you’ve read through the details below if you’d like to know more about life insurance and critical illness cover, call us on 0808 189 0463 or make an enquiry and we can arrange for an advisor we work with to get in touch.

Is life insurance the same as critical illness cover?

Life insurance and critical illness cover are not the same thing, but before looking at the major differences between the two covers, it’s worth noting their similarities:

  • Both are designed to protect against the risk of financial loss if an unexpected event occurs.
  • Both pay out a one-time, tax-free lump sum in the event of a claim.
  • Applications are subject to medical underwriting before they can be approved (based on a person’s age, gender, health, lifestyle and occupation).
  • There are no restrictions or guidelines as to what the funds can be used for once they are paid out in the event of a claim.

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What are the key differences between life insurance and critical illness insurance?

In a nutshell, the key difference between life cover and critical illness cover involves the circumstances in which each type of insurance would pay out.

Life cover would pay out a one-off, tax-free lump sum if you were to die during the term of your policy. Critical illness cover, on the other hand, would pay out upon diagnosis of a serious illness, disability or medical condition as outlined within the policy guidelines.

Life insurance

Life cover is fairly straightforward. If the policyholder dies during the term of the policy, then a claim can be made for the sum assured to be paid out.

The only circumstances where a claim may be declined would be:

  • Death due to suicide (most insurers will only stipulate this during the first 12 months of a policy)
  • Death due to direct involvement in a criminal activity
  • Death due to an existing condition not disclosed during the application process
  • Death occurring when visiting a foreign country outside those listed as acceptable in the policy terms and conditions (though this typically only applies to countries deemed hazardous).

Critical illness cover

Critical illness cover is not quite as broad as life cover and would only pay out once the insured is diagnosed with a specific illness outlined within the policy.

What would be defined as a critical illness will vary depending on the insurer, however, most providers cover the following:

Not all insurers will cover every category or occurrence of these illnesses, therefore, it’s important to review all the policy terms and conditions before proceeding.

In addition, other conditions a provider may include within a critical illness policy include:

  • Total permanent disability
  • Loss of speech
  • Liver or kidney failure
  • Coronary artery bypass surgery
  • Loss of limbs
  • Multiple sclerosis
  • Alzheimer’s
  • Loss of sight or hearing
  • Motor neuron disease
  • Serious brain injury
  • Third degree burns
  • Paralysis
  • Diabetes

Other differences between the two types of cover include:

  • The financial loss each type of cover protects against
  • Who receives the money in the event of a claim
  • When this cover is most needed

The financial loss each type of cover protects against

The aim of life cover is to protect your family financially in the event of your death. In many cases, you can link the sum assured to a particular multiple of your annual income.

For example, if you earn £40,000 per year a sum assured of £200,000 would equate to five years’ worth of your income. In addition, life insurance can cover all your funeral costs.

Life cover can also be used to repay in full any outstanding debts, the obvious one being the mortgage on your home. Furthermore, if you would like to leave a financial legacy for your dependants, a life insurance policy can cover this.

Whilst critical illness cover can also be used to cover loss of income and outstanding debts whilst you recuperate. More specifically, it is regarded as a ‘living benefit’ often used to aid with any additional medical treatment you need to assist your recovery, including renovations to your home if required (wheelchair access, downstairs bathroom, etc.).

Who receives the money in the event of a claim

In the event of your death, the proceeds from a life insurance policy are paid to a beneficiary or beneficiaries who have control over how the money will be spent. The policyholder can allocate specific percentages across a number of beneficiaries.

As critical illness cover would pay out while the insured is still alive. They have full control over how the funds are used in order to aid their recovery.

When this cover is most needed

If you’re single with no dependents, beyond making sure you have adequate cover for funeral expenses, life cover is not as much of a necessity versus critical illness cover. For the former, there would still be a very clear need to ensure you have sufficient funds to help you with your recovery..

If you’d like to know more about the difference between life assurance and critical illness cover and how this relates to your own personal circumstances make an enquiry and we can arrange for one of the advisors we work with to get in touch.

Can I combine both life insurance and critical illness cover?

Yes, it’s possible. Pitching ‘critical illness versus life insurance’ can sometimes create a misunderstanding that both forms of protection are somehow competing against each other when in reality. As outlined above, that is not the case.

A policy which offers a combination of the two types of cover would be the best recommendation as this offers a more comprehensive form of insurance and total peace of mind. In fact, many insurers offer these policies together as standard.

If you’d like to know more about the range of policies available which integrates both life and critical illness cover, get in touch and we can arrange for an expert to contact you directly.

Speak to an insurance expert today

If you’re interested in both life and critical illness cover and would like to speak with an expert in order to explore what options are available to you, call us on 0808 189 0463 or make an enquiry here.

Ask a quick question

We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in critical illness cover. Ask us a question and we'll get the best expert to help.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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