Life Insurance vs. Serious Illness Cover: Understanding Your Options

When looking into financial protection for you and your family, you might come across both life insurance and serious illness cover. At a glance, they can seem similar, as both are designed to provide a cash payout that could help support your loved ones financially. However, they are designed to work in very different circumstances.

Understanding the key differences between them can help you think about what kind of protection might be suitable for your family’s needs and your financial future.

The Direct Answer

The main difference between life insurance and serious illness cover is the event that could trigger a payout. In simple terms, a life insurance policy is designed to pay out a lump sum if you pass away during the policy term. Serious illness cover is designed to pay out a lump sum if you are diagnosed with a specific serious illness that is listed and defined in your policy.

What is life insurance for a family?

When people look for ways to help protect their family’s financial future, they might consider different types of life insurance. Depending on their needs, they might look at level term, decreasing, or even increasing term life insurance policies to help do things like support dependants or cover a mortgage.

Our Polly Family Protection policy is a type of ‘level term’ life insurance. This means it’s designed to pay out a fixed cash sum that doesn’t change during the length of the policy. The aim of the policy is to pay out this lump sum if the person covered passes away, and this could be used to help your family manage ongoing costs, like household bills or childcare expenses.

What is Serious Illness Cover?

Serious illness cover is a policy designed to help support you financially if you become seriously unwell. It aims to pay out a tax-free lump sum if you are diagnosed with one of the specific conditions listed and defined in your policy.

The cover is focused on what are often considered major health concerns, such as cancer, heart attack, or stroke. For a claim to be paid, the diagnosis must meet the specific definition shown in your policy documents. It can be important to check the Key Features document for a complete list of all illnesses that are covered.

Receiving a cash payout at this time could help to reduce financial worries while you focus on your health and recovery. The money could be used for many things, such as helping to cover lost income if you need to take time off work, paying for private treatment, or making adaptations to your home.

What is the main difference in how they could pay out?

The most significant difference is the circumstances under which a claim could be made.

• Life Insurance is designed to pay out upon death.
• Serious Illness Cover is designed to pay out upon diagnosis of a specified illness that is listed in the policy.

This means a serious illness policy could potentially pay out while you are still living, providing financial support during your treatment and recovery. Life insurance, on the other hand, is intended to provide for your dependants after you’re gone.

Thinking about what might work for you

Choosing financial protection can be a personal decision. It can be helpful to think about your own circumstances. For example, you might want to consider what financial support your family would need if you were no longer around, or how you would manage financially if you were diagnosed with a serious illness and couldn’t work.
Reviewing your options and understanding how each type of policy works can help you make a more informed choice about your family’s financial protection.

Can you have both types of financial protection?

Yes, it is possible to have both a life insurance policy and a separate serious illness cover policy. Some people choose to have both to create a more comprehensive financial safety net.
The two policies could offer different types of support for different life events.

TL;DR: The Key Differences

• Life Insurance: Designed to pay a lump sum to your loved ones if you pass away during the policy term.
• Serious Illness Cover: Designed to pay a lump sum if you’re diagnosed with a specific illness defined in your policy. Cover is focused on major conditions, such as cancer, heart attack, and stroke, but it’s important to check the policy documents for the full list.
• The Trigger: The key difference is the event that leads to a potential payout – either death or the diagnosis of a specified illness.
• Purpose: Life insurance is typically for your family’s future financial security. Serious illness cover is often for your financial needs during recovery.

At Polly, we aim to make understanding financial protection clearer. If you want to explore your options further, you can find out more about our products.