The Different Types of Life and Critical Illness Cover

Insurance against life risks is an important financial decision to make, but it can be difficult to compare life and critical illness cover because there are so many variables to consider. Taking the time to carefully study all the options and understand the different types of insurance available is time well spent.

There are two main types of life insurance: level term and decreasing term. Level term pays out an agreed amount if you die, and that amount does not change over time (unless you change the policy). With decreasing term life insurance the amount paid out decreases over time. Some insurance companies also offer a third option in which payments and payouts are linked to inflation.

A decreasing term policy is useful if your expenses are expected to decrease over time. So, for example, you will probably not need as much cover after your house is paid off than you do when you have a large mortgage. Level term cover can be the best option if you do not have large financial commitments, or if you want to be sure you have enough, but this type of cover is usually more expensive.

Critical illness insurance cover pays out an agreed amount if you are diagnosed with a serious or terminal illness that is defined in the policy. Many insurance companies offer critical illness cover either as a separate product or bundled with life insurance, and this can be worth the extra money to give you extra security. Critical illness cover is designed to meet expenses such as mortgage payments, alterations that might be necessary to your house to accommodate a wheelchair if you become disabled, and so on. It is normally paid out only once, after which the policy ends.

The illnesses covered vary from one company to another, and if there is a history of a particular illness in your family, it is worth shopping around to make sure that illness is included. The conditions that might be covered include some (but not all) types of cancer, cardiomyopathy, stroke, irreversible liver or kidney failure, blindness, heart attack, chronic lung disease and dementia, among many others. Some insurance policies cover dozens of conditions, while others cover well over a hundred. The policy will also specify how serious or advanced these illnesses must be before a pay-out will be made.

Some insurance companies include critical illness benefit for the children of the main insured person, and this addition will often be at no extra cost. If children are covered, the payout in the event of the child being diagnosed will often be less, and the illnesses covered for children may differ from those covered for the adult.

Insurance cover for critical illness is only paid out if the insured person survives a specified time (such as 14 days) after being diagnosed with one of the conditions covered. The required survival time varies from company to company. Further restrictions may apply to child critical illness cover. For example, children may not be covered if they are under 30 days old or over 18, or if the symptoms were present at birth or before the policy was taken out.

Life and critical illness insurance policies are not all the same. Some life insurance policies offer a cash-out option, which means you can draw on your excess payments if need be, while others do not. Most life and critical illness policies pay the benefit out in a cash lump sum if you die or are diagnosed with a terminal illness, but others pay out a monthly amount until the end date of the cover. In some cases you can only make one claim, which means that if you are diagnosed with a terminal illness and make a claim, your life insurance and critical illness insurance will both end.

It is well worth the effort of checking the fine print of your proposed insurance policy before committing yourself. It is also worth taking the time to do a detailed comparison of a number of possible insurance companies and polices before you make a final decision, and there are several comparison websites that help you do this. Taking the time to compare life and critical illness cover options will pay off in money saved and in providing assurance that your needs will be adequately covered.

Sam Jones the author often recommends to his readers to compare life and critical illnes cover at uSwitch.com, a comparison website where all the main providers can be compared.