Life and Critical Illness Insurance Compared

By David H Thomson

There is typically a place for both life and critical insurance in the armoury of defences for the continuation of normal family life following the death of one of it's breadwinners or other providers. Understanding where each of these types of insurance fits, however, is probably repaid by a closer comparison of the two.

Life insurance

Life insurance is conventionally probably the better known of the two. It operates on the simple and straight forward principle that the death of a family member is likely to leave the survivors with expenses leading to potential financial hardship. Indeed, this way of saving for such expenses - first and foremost the expenses of simply according the deceased a respectful burial - mainly took off during the latter part of the 19th century and the growth of many "friendly societies" offering just this form of saving for those inevitable expenses. These recognised not the risk of death so much as its eventual inevitability and so was given the title of life assurance (an assured sum paid out when the insured person died) rather than a risk orientated life "insurance."

As the principle developed, however, it was realised that it was possible to introduce an element of risk assessment if the premiums paid were to provide a cash benefit in the event of the insured's death during a certain period of tme - this became known as the insurance term and, so, term life insurance was born.

This development allowed individuals with commitments to any dependents to insure against the risk of their dying before their time - within an insured term - therefore not leaving their dependents financially in the lurch.

Critical illness insurance

To compare life and critical illness insurance, it may typically be helpful to see the latter as a further refinement of the former. It is not just the death of the insured person that may leave the surviving dependents in financial hardship. If a critical illness is diagnosed, the inability to work or the need for specialist medical care, can also take their toll on the family finances. Critical illness insurance, therefore, is also typically based on the payment of a regular, monthly premium, in return for which the insurer pays out an agreed lump sum benefit in the event of a defined "critical illness".

If a critical illness is diagnosed, therefore, the insured and his or her family have the comfort of knowing that additional cash is be forthcoming to use as an alternative source of general income, to make needed alterations to the family home in order to accommodate any physical disabilities, or to hire the nursing or care staff needed to help the critically ill person.

Because different insurance policies define a "critical illness" in a wide range of ways - some relatively limited and restricted; some with a much wider interpretation - it is important to understand very carefully exactly which illnesses are covered in any policy you intended to buy.

In summary, life and critical insurance may be something to consider if you are worried about leaving those you love behind in a state of financial worry.

Life Insurance

ObituariesHelp.org

An informative and respected website designed to offer
resources for obituaries, funerals and genealogy search