What Is Terminal Vs. Critical Illness Coverage With Life Insurance?

What Is Terminal Vs. Critical Illness Coverage With Life Insurance?
People buy life insurance for a variety of reasons, some of which go beyond just a death benefit. For example, there are both protection and investment focused policies, there can be important tax benefits to life insurance, and many policies include either terminal or critical illness cover.
Any life insurance policy, of course, pays out a death benefit to the beneficiary upon the covered individual’s death; but here, we want to delve into two lesser known aspects of life insurance.

What Is Terminal Illness Coverage?
With many life insurance policies, terminal illness coverage will be included at no extra charge. This form of cover is activated if the covered individual is diagnosed with as terminally ill and is expected to die within 12 months of that diagnosis.

What terminal illness cover does is causes the death benefit to be paid out early. That helps to cover the mounting medical expenses that often occur in the final days of one’s life, so that one’s survivors are not left with impossibly high medical bills to pay.

And if you buy a mortgage life policy, which covers your mortgage along with the regular death benefit, it too may include terminal illness cover at no additional charge. So your mortgage would then be paid off early as well in that case.

What Is Critical Illness Coverage?
Similar to terminal illness cover, but distinct in important ways, is critical illness cover.

First of all, you would always have to pay an additional charge on your monthly premiums to have critical illness coverage included in your policy.

Second, there is no 12-month rule when it comes to critical illness coverage, as with terminal illness coverage.

Third, you need not be diagnosed as terminally ill to collect. You only have to be diagnosed with any of the specific illnesses listed in the policy as applicable, such as heart attacks and serious strokes, traumatic head injuries, permanent disabilities, and many forms of cancer.

Fourth, the purpose of critical illness coverage is to ensure the ability to meet one’s financial obligations and to continue a reasonable standard of living after a serious medical condition, even if the covered individual survives it. That’s different from terminal illness cover, which is meant to simply pay out the death benefit early in the case of the terminally ill.

Thus, although it is an extremely common mistake to confuse terminal with critical illness coverage on a life insurance policy, it’s a mistake you don’t want to make since they differ substantially.

Finally, note that both types of cover may have exclusions for accidental injuries that occur while doing such dangerous activities as mountain climbing or bungee jumping. Each insurer will have different exclusions, so you’ll have discuss the details with your insurance agent.

To learn more about the various elements of life insurance policies, including terminal illness and critical illness coverage, contact Flagler County Insurance Agency today!