Life Insurance – Critical Illness Coverage vs. Life Insurance
BY MELANIE WALTERS

Both life insurance and critical illness cover can be of immense value in the event of the untimely illness or death of the family breadwinner. Having either one or a combination of both these types of insurance can enable normal family life to continue in the event of unforeseen tragedy. There are both differences and similarities between life insurance and critical illness cover though, and knowing these is important in choosing the appropriate policy for yourself and your loved ones. Let's then take a closer look at the two, after which you will be better able to decide which is best for you – critical illness cover, or life insurance.

A General Description of Life Insurance

Most people are probably more familiar with life insurance than critical illness cover; it is more widely advertised, and consequently more commonly held. The principle behind life insurance is that; a lump sum is paid out to designated beneficiaries on the death of the policy holder. This payment helps the surviving family to continue their lives with as little financial hardship as possible. This form of financial preparation for the inevitability of death began in the late 19th century, and has since grown into the multi-billion dollar business it is today. Originally known as life assurance – which assured a set payment upon the death of the insured – it developed into what is commonly known these days as "term" life insurance.

Term life insurance developed when underwriters (those who offer the policy) realised that an element of risk assessment could be introduced to the product. The premiums (monthly payments) paid in order to guarantee the cash benefit to be honoured upon the insured's death, would continue for only a limited time or "term". If the insured survived the term, no pay out would be made, though some contracts allow dividends (accumulated interest on the sum insured for) to be paid. This allowed for the financial security of the proposed beneficiaries in the eventual death of the insured person outside of the insurance term.

How Critical Illness Cover Differs from Life Insurance

Critical Illness Cover actually evolved through life insurance. Providers realized that serious injury or illness could cripple a family as much as, or even more than death, and so Critical Illness Cover was developed. This type of policy provides for dependants of the insured if they are diagnosed with a critical illness. The additional cash can then be used to pay for ongoing or specialised medical care, as well as continue payments on mortgages or other outstanding types of loan.

Different companies have different descriptions of what constitutes a critical illness, so each policy should be read carefully to ensure that it offers a wide range of coverage. As they possess different descriptions of what a critical illness is, providers also may differ in the exact critical illnesses or conditions they cover. It's hard to predict what illness may befall you in the future, so it is best to give a good amount of time to the study and consideration of each policy, as well as having a good knowledge of your family medical history.

Both life insurance and critical illness cover can be of immense value to your family in the event of an untimely tragedy. Some providers offer a combination of the two, though the premiums for such policies will be higher than for only one or the other.