Life Insurance is, perhaps, a misnomer. It’s a policy that’s only going to pay out when you die – it’s a policy that benefits your dependents and allows them a better start on the rest of their days without you. It can also pay out on diagnosis of a terminal illness (in which you are expected to live for 9 months or less) – this is not to be confused with Critical Illness.
Critical Illness is a policy which pays out to help you through one of the hardest times in your life – diagnosis of a serious condition. The policy will have a list of “critical illnesses” which it will cover but these are not conditions you will necessarily die from and therefore, this benefit goes towards helping you in your lifetime.
There are things to consider when purchasing both.
With Life Insurance, it’s up to you how much benefit your dependents will receive (think about covering your debts, paying for your funeral, helping with costs of education for children etc), but also how long you want the policy to run (the “term”). Most reputable companies offer a term up to age 84 but it is possible to have “whole of life (WOL)” although it’s expensive for obvious reasons.
If you’re wondering why all life policies aren’t whole of life, (isn’t that the point?!) then the answer is down to practicalities. If you die young, the chances are you haven’t paid off the mortgage yet, you may have many dependents, you may still be a breadwinner for the family. By your eighties, it’s more likely your dependents are independent, you are mortgage and debt-free and therefore your death isn’t going to leave your family with huge debts.
When buying Critical Illness, it’s important to read the list of illnesses covered to make sure your expectations are in line with the policy. Usually the longer the list, the better the policy. Once taken out, in the event you develop an illness on the list, you receive the benefit as a lump sum and the premium stops. There is sometimes an option to purchase another policy but there are drawbacks: you will usually only receive half the benefit you had in the first place, you need to have chosen a “buy back option” on the first policy and it depends on the terms of this first one whether your application to buy another will be accepted.
Once you have your funds, how you choose to spend them is up to you. Many pay off debts to make finances easier. You may find your diagnosis requires some adaptation to your home or lifestyle – this benefit can make this much easier. It’s also common for people to use the money to “get away from it all”, to take a lovely holiday and enjoy the moment. It does make a hard time that little bit easier.
If you’d like me to take the time to talk you through how these policies can help you, please don’t hesitate to call me on 0800 690 6990. There’s no fee and no obligation at any time.