The difference between life insurance and critical illness cover

You can have both, but to help you decide, it’s important to know how each insurance works. For example, life insurance is designed to pay out a sum of money, to your loved ones, if you were to die during the policy’s term.
This lump sum can help to support and protect your loved ones after you’re gone, as your own income will no longer be coming into the household. It can also help them financially if they take on your outstanding debt and support them with expenses such as funeral costs.

Critical illness insurance works differently, as it pays out before a person dies. Claims are made if you are diagnosed with an illness from the policy’s list of covered critical conditions. The payout from this cover can support you during treatment and help cover expenses when you may be unable to work.

While they’re different, both types of insurance are worth considering if you have dependents who rely on you financially.

Can I get critical illness cover and life insurance together?

Yes, you can get life and critical illness insurance together. It is important to understand that this can be set up set up in two ways:

• One cover for life or critical Illness, this will pay out for either the life cover or the critical illness cover, whichever claim event happens first.
• Two separate covers set up, one for life and one for critical Illness. So, if you make a critical Illness claim the life cover would continue unaffected. If you’re ever unsure about what kind of cover you need, our guide to types of life insurance can help you understand what you could be eligible for and how different policies work.

Do you pay tax on critical illness insurance payouts at point of claim payment?

No. Critical illness cover pay-outs aren’t considered income by the UK government, because you haven’t technically earned it. This means that any payouts from critical illness insurance or life insurance won’t be subject to income tax. You pay the premium from your take-home pay, which has already been taxed. Any payouts from protection plans could impact eligibility for means-tested benefits. We recommend that you contact the relevant Benefits Office for further information.

Other Insurance products

You could also take out income protection as part of your protection planning, this will payout if you are unable to work through illness or injury and meet the provider’s definition of incapacity. It will pay out a monthly benefit for either the full term of the cover or a shorter payment period depending on the details of your cover.

Understanding the difference helps you choose the right protection for you and your family.