What is critical illness insurance?
Put as simply as possible, critical illness insurance is a form of insurance put in place to pay the policy holder a lump sum of money, all tax-free, in the event of a critical sickness being diagnosed, or if they are forced to undergo a surgical procedure related to the that illness. The thing to remember is that you must check with your insurance providers about what they consider to be a critical illness. The illness in question must meet their definition of a critical illness. It is primarily put in place to provide financial support for the policy holder and their family as they deal with/recover from the crucial illness in question.
Is critical illness insurance the same as life insurance?
No. Though they share certain similarities, critical illness insurance is very different to life insurance. In the event of the policy holder being diagnosed with a critical sickness, the insurance providers will pay out a tax-free lump sum. This payment is designed to help assist with the treatment and recovery from the illness/condition, as well as helping to pay the bills if the policy holder is unable to work due to their illness. Critical illness insurance is very different to life insurance because it usually does not pay out in the event of the policy holder passing away. Some policies may, but more often than not, they don’t.
How does it work?
Cover for a critical illness policy is based upon how long the holder wishes the policy to last. Once a claim is made, most policies will draw to a close. Another deciding factor is how much you’re willing to pay each month. Usually, policy holders will want lengthy policies for as long as they still have financial obligations to meet. So, things such as mortgages, finance, loans, and so on. You then select which type of cover you need. Generally there is level cover, or decreasing cover. With level cover, policy holders select a lump sum to leave behind and choose how long the want the cover to last. With decreasing cover, value of the cover reduces each month. If you have debts or loans requiring a monthly repayment, this type of policy could be more suited to your needs and requirements.