What Is The Difference Between Critical Illness Insurance and Life Insurance?

Critical illness insurance and life insurance are two different types of policies that can provide your family with protection in the event of a serious illness or death. While they have some similarities, there are also some crucial differences between critical illness insurance and life insurance.

In this article, we'll discuss the main differences between critical illness insurance and life insurance. We'll also help you understand how to choose the right policy based on your individual needs. So, let’s dive in!

Life Insurance Basics

How it Works

Life insurance is a contract between you and an insurance company that guarantees coverage in exchange for timely paid premiums. Your named beneficiary (usually a spouse, parent, or child) receives a death benefit from your life insurance policy when you pass away.

To get the benefit, your beneficiary needs to file a claim with the insurance company and provide the necessary documents. The insurance company may require the death certificate of the policyholder, the policy document, and a claim form.

When the insurance company receives all the documents, your beneficiary will be paid the death benefit.

Cost of Life Insurance

Many factors affect the cost of your insurance, and each factor can have a significant impact. Your age, health, family medical records, gender, lifestyle, hobbies, job, and credit are all factors that insurance companies consider when determining your premiums. The final price is also affected by factors such as the type of insurance you select and the amount of coverage you require.

A 20-year term life insurance policy with $250,000 coverage, for example, costs, on average, $442 per year for a 40-year-old male but $14,094 per year for a 70-year-old.

Who Needs Life Insurance?

You might need life insurance coverage if you want to:

1. Cover your final expenses.
2. Replace your income and secure your family's financial future.
3. Leave an inheritance to family members.

Critical Illness Insurance Basics

Critical illness insurance is a form of life insurance that protects you against a serious illness. It is designed to protect your family if you are no longer able to work, and it can also help pay for your medical bills.

If you are diagnosed with a covered illness, critical illness insurance will pay out a lump sum payment—usually between $20,000 and $200,000—that can help cover medical bills or other expenses related to your condition.

You can also use this money toward paying off debt or contributing toward retirement savings, which helps ensure that your loved ones will be taken care of even if something happens.

Critical illness insurance is an affordable way to safeguard your income from serious illnesses. You can also check out Income Protection Insurance for more comprehensive coverage.

The illnesses that this policy covers may vary from company to company, but they typically include long-term and serious conditions such as:

• Heart attack
• Stroke
• Cancer
• Multiple sclerosis
• Parkinson’s disease
• Alzheimer’s disease
• Kidney Failure
• Deafness
• Blindness
• Loss of Speech

Critical Illness Insurance Versus Life Insurance: Key Differences

Critical illness insurance and life insurance are similar in that they both provide financial support to people who are facing hardships. Both types of policies are designed to help people cope financially with unexpected events like death or illness. However, they differ in several important ways. Let’s break each one down.

Purpose

Critical illness insurance provides coverage for a specific medical condition that could arise. This type of insurance is typically used to cover the cost of treatments or procedures that are not covered by health insurance. For example, if you need chemotherapy for cancer treatment but your health insurance does not cover this expensive procedure, critical illness insurance can help cover the cost of the chemo.

Life insurance covers your death or another specified event that results in your beneficiaries receiving money from the life insurance company. If you have a family that depends on your income, purchasing life insurance can help protect their financial future should something happen to you.

Benefit Payout

Both types of insurance provide a lump sum payout. However,  they differ in how they're used and when they are paid. Critical illness insurance is designed to help pay for costs associated with specific illnesses.  As opposed to life insurance, which only pays out once you've died, critical illness policies pay out when you're diagnosed with one of the covered conditions—which means they can help keep your family afloat while you're still alive and fighting.

Critical illness policies do not guarantee coverage for any specific amount. It will depend on the type of disease you get diagnosed with, the treatment you require, and other medical information.

On the other hand, life insurance policies will pay out a fixed amount specified by your policy's terms. The payout amount depends on how much coverage you buy and how old you are when you buy it; younger people generally pay less per year than older people because they have longer to live.

It's important to note that both types of insurance have their own unique benefits and drawbacks, and the best choice for an individual depends on their specific needs and circumstances.

The Bottom Line

Critical illness insurance and life insurance are two types of insurance that can be used to protect your family and loved ones from the financial impact of a critical illness or death. When choosing between critical illness insurance and life insurance, it's important to understand how they work individually and what situations each is best suited for.

Both types of insurance provide a lump sum payout upon diagnosis or death, but they differ in how they're used. Critical illness insurance is designed to help pay for costs associated with specific illnesses, while life insurance provides a lump sum benefit upon death.