Life Insurance – Comparing Critical Illness Cover and Life Insurance
BY MELANIE WALTERS

Almost everyone considers the value of life insurance at some point in their life, and many buyers come across the option of Critical Illness Cover while doing so. There are a multitude of companies offering enough alternatives of both to confuse even the most knowledgeable of consumers. There are though, an adequate amount of basic principles that can help anyone to understand the essential ingredients of either type of protection. Let's take a look at the main differences between Critical Illness Cover and Life Insurance.

A Brief Summary of Life Insurance

As the name implies, Life Insurance is a form of insurance that covers the policy holder's life. The prospect is assessed regarding the risk of their death occurring within a specific period of time, and in the event of that happening, payment of a predetermined amount of money to designated beneficiaries. This is known as "term" life insurance as it covers a specific period of time, and basically offers a means of providing for dependants of the policy holder in the event of their untimely death. As such, life insurance can ensure the continued payment of mortgages or other outstanding loans, as well as enabling surviving loved ones to maintain their particular standard of living.

Standard term life insurance generally incorporates the following:

• Determining the amount of cover (the sum of money the beneficiaries will receive on the policy holder's death) required to provide for dependants. This will include an accounting of the possible mortgage and loan account balances that might be outstanding at the time of death. Repayment mortgages where the balance reduces over time may be better served by a form of life insurance known as "reducing term" life insurance – designed to cover the balance as it changes over time.
• Calculating the amount of monthly premiums that the policy holder can afford. This will directly affect the amount of life insurance coverage that will be available to the prospect.
• The age of the policy holder is also a determining factor in the price of the life insurance to be purchased. Since term life insurance covers a particular period of time, the younger the person is, the cheaper the premium (monthly payments) will be.

The term life insurance is often used to describe another product more correctly titled Life Assurance. Life assurance offers a payment whenever the death of the policy holder occurs; in other words there is no fixed term or time period that the policy covers. Whereas with life insurance – if the policy holder dies after the fixed term has passed, there is a guaranteed payout with life assurance, and hence the premiums are more expensive.

How Life Insurance Differs from Critical Illness Cover

The primary difference between critical Illness cover and life insurance is that with critical illness coverage, the policy holder receives the benefit. Term coverage can also be purchased with critical illness cover, the risk being in the policy holder being diagnosed with a critical illness during the period covered. The payment is made as a lump sum, and this may be used to provide an alternative income should the holder be unable to continue earning, or used to pay for ongoing medical care or treatment. Typically critical illness coverage involves:

• Determining the total payout to be made in the event of illness.
• Determining which illness will be covered by the policy.
• Being aware that, as with term life insurance, no payout will be made if the holder survives the term without succumbing to a critical illness.

Both life insurance and critical care cover are affordable ways for people to avoid financial disaster in the event of unexpected death or illness. A simple way to remember the difference lies in the names of the two products. Life insurance will provide relief in the event of death, critical care cover in the event of critical illness.