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Differences between Life Insurance and Critical Illness Insurance

There are many different types of insurances in the market, with many different terms. Among the ones you’ve probably heard of before is life insurance and critical illness (CI) insurance- but what’s the difference?

Firstly, regardless of whether you are purchasing life insurance or CI insurance, the purpose of insurance is to help protect you and your loved ones financially, in the event of an unforeseen, unfortunate circumstance. 

Life insurance is designed to protect your loved ones or beneficiaries after you pass on, by providing financial support. 

On the other hand, critical illness insurance is designed to help provide financial aid upon critical illness diagnosis, to cover your medical expenses and financial commitments, so that you can focus on getting better without worrying about your finances. The table below shows the differences of both insurance plans at a glance:

Life Insurance Critical Illness Insurance
Coverage Your life Critical Illnesses. Amount varies between policies.
Coverage Period Whole life Up to a specific age, or up to your first claim.
Payout Criteria Upon death Upon first diagnosis of critical illness.
Payout Recipient Your named beneficiaries You or the policyholder (if your children are the insured).
Payout Type One time, lump sum payout.

1. Coverage

As its name suggests, life insurance is insurance for your life- if the policyholder passes away during the policy term, the insurance company will pay out the sum assured. It is important to take note of exclusion clauses, such as death by suicide or death involved during a criminal activity, which will void your claims for life insurance payout.

On the other hand, CI insurance provides financial coverage for multiple types of critical illnesses. For example, NTUC Income’s Star Secure Pro policy covers 142 early-stage illnesses and 49 advanced stage illnesses, with up to 500% guaranteed benefit multipliers available. Just like life insurance, you will also need to take note of the illnesses covered in your policy, to ensure that you are eligible for claims.

2. Coverage Period

Usually, life insurance will cover your whole life, up until you pass away. It is one of the most basic insurance that you should have, if you have any dependents.

Meanwhile, critical illness policies usually cover up to a specific age, or until the first claim is made, depending on the policy terms. For instance, China Taiping’s i-Secure legacy covers up to 86 years old, with guaranteed benefit multipliers up to 400% available.

3. Payout Criteria

Beneficiaries of life insurance will receive a lump sum payout of the sum assured, after the policyholder passes away. They will have full control of what they want to do with the money, which usually is used to cover funeral costs, mortgage costs or the dependents’ living costs.

On the other hand, for critical illness policies, you will receive a lump sum payout in cash, upon diagnosis for any critical illness included in the policy. You will be able to determine what you want to do with the payout, which is not limited to only medical expenses. You can use it to pay for your living expenses while you’re undergoing medical treatment.

4. Payout Recipient

In the event of your passing, the sum assured of your life insurance will be paid to a named beneficiary or beneficiaries of the policy, which can be your spouse, children or even a good friend.

You will be the recipient of your critical illness payout, as you are still alive. Or if you are the beneficiary or policyholder of your children’s critical illness insurance, you will receive the payout from the insurer and can determine how you want to use the funds to help their recovery.

Everyone needs insurance to protect themselves and their families from the unexpected emergencies in life, especially when your loved ones are financially dependent on you. Compare different life insurance policies and critical illness policies on InsureDIY.

Still confused? Speak to our experienced consultants to clarify further.

Posted in Insurance, Life & Health