Life and critical illness insurance are often mentioned in the same breath because they are sold as a package by insurers, although it is possible to get one and not the other. Life insurance in its most basic form involves a straightforward payout to a named beneficiary in the event of the policy holder's death, while critical illness insurance will pay out in the event that the policyholder is diagnosed with a serious but not necessarily life threatening illness.
The idea with both types is to provide financial support for either the policyholder or loved ones in the event of a tragic and distressing event such as a death or serious illness. Both events can be life changing for those concerned, and financial support from an insurance policy can be used to cover everything from basic funeral costs right the way through to healthcare or simply to replace the lost wages of someone who has died, effectively filling the gap left by the lack of the main bread winner being in the house.
Life insurance on its own comes in many different forms and the most basic is level term cover, which involves a guaranteed amount of payout running right the way through the length of the policy. The amount won't change over time and if somebody does need to claim then they'll get the full amount. However, the amount of cover will be for a fixed period only and not right the way up until someone's death, whenever that may be. For a payout to be made on this kind of insurance the claim will have to be made i.e., the person will have to die, within the set policy period. Even if somebody died only a few days after a policy expires, they would not be covered.
Other types of life insurance will involve a payout which decreases over time in line with someone's mortgage, effectively providing a safety net for a loved one who may be left with an outstanding home loan in the event of someone's death.
Critical illness insurance is often attached as a bolt on to life insurance and is similar to life cover, but pays out not in the event of death but the event of diagnosis of a serious but not necessarily fatal medical problem. Some examples might include cancer, multiple sclerosis, or a similarly serious condition. For a full breakdown on this you can ask the potential insurance company.
The benefits of this mean that somebody can spend the payout just how they wish, perhaps spending some of it on private treatment and some other on a holiday, or simply giving some of it to loved ones. There is no condition normally put on how you spend the money which comes from critical illness insurance, just in the same way there is normally no condition put on how the beneficiary spends the money from life insurance.
Life and critical illness insurance can be combined together to provide a kind of last resort safety net against tragic circumstances which could leave somebody's loved ones in a financial mess or could mean that somebody diagnosed with a medical problem in the latter stages of their life finds themselves in financial difficulty or would prefer private treatment but simply can't afford it.
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