Many people with life protection policies often overlook critical illness insurance. These are two distinctly different policies. Protection policies pay out on death, critical illness insurance pay out during lifetime. Protection polices have beneficiaries other than the policy holder, for critical illness policies the policy holder is the beneficiary.

The benefit of a critical illness policy could be used to pay for adjustments to your home after suffering a serious illness or to help pay committed expenses such as a loan. This allows to the policy holder to concentrate on their recovery during this stressful period of their life. 

Below I have explained some of the misconceptions between life protection and critical illness cover.

Misunderstanding of Coverage

- Assumption of Comprehensive Coverage: Many believe that life insurance covers all major health-related financial risks. They might not realise that life insurance typically only provides a payout upon death, not for illnesses.

- Confusion Between Policies: People may confuse life insurance with health insurance or assume that their life insurance includes critical illness coverage.

Focus on Death Risk

- Underestimating Illness Risk: There's a common tendency to focus on the risk of premature death rather than the likelihood of experiencing a critical illness. Statistically, people are more likely to suffer a critical illness before age 65 than to die.

- Fear of Mortality: People may be more motivated to plan for the eventuality of death rather than considering the possibility of living with a serious illness.

Cost Considerations

- Perceived Additional Expense: Critical illness insurance can be seen as an unnecessary additional expense on top of life insurance. People might prioritise other financial commitments over additional insurance coverage.

- Budget Constraints: Some may have limited budgets for insurance and choose to allocate all available funds to life insurance, which they perceive as more crucial.

Lack of Awareness

- Limited Knowledge: Many people are simply unaware of what critical illness insurance is and what it covers. Without adequate information, they may not consider it in their financial planning.

Employer Coverage Assumptions

- Reliance on Employer Benefits: Some assume their employer-provided health insurance is sufficient to cover all medical and income needs in case of a critical illness, not realising the limitations and exclusions of such policies.

Optimism Bias

- Health Optimism: People often believe that serious illnesses won’t happen to them, leading to a lack of urgency in securing critical illness coverage.

- Youth and Health: Younger, healthier individuals might feel invincible and think critical illness insurance is unnecessary for them. Zurich’s most recent Claims Report (2023) showed that their youngest Critical Illness claim recipient was 27 years old and the average age of a claimant was 49 years old.

Complexity and Perceived Difficulty

- Complexity of Policies: Critical illness policies can be complex, with varying definitions of covered illnesses and conditions. This complexity can deter people from investigating further.

- Application Process: The perceived hassle of applying for another insurance policy, including medical evaluations and paperwork, can be a deterrent.

Over Reliance on Savings

- Belief in Personal Savings: Some people believe their personal savings or investments are sufficient to cover the costs of a critical illness, not considering the potentially high and prolonged expenses involved.

While life insurance is crucial for providing financial protection in the event of death, critical illness insurance addresses the substantial financial risks associated with severe health conditions that occur during your lifetime. Awareness of the distinct and complementary roles of these insurance products can help individuals make more informed decisions, ensuring comprehensive financial protection for themselves and their families.