Critical illness or income protection?

Critical illness cover (CIC) and income protection (IP) can be taken out as separate policies alongside a life insurance policy for additional financial protection.

As both pay out in the event that you’re unable to work due to illness, they’re often confused. But there are some major differences between these two types of cover.

But what are these differences and which type of cover is better?

Although we can’t currently secure income protection for you at Reassured, this article will investigate the pros and cons of critical illness cover and income protection to help you make an informed decision about which option may be best for you.

Reassured, the largest life insurance broker in the UK, provides an award-winning service helping thousands of customers every day secure the financial future of their loved ones.

We compare quotes for critical illness cover as an individual policy or as part of your life insurance policy - helping you find the best deal.

Keep reading for an in-depth comparison between income protection and critical illness cover...

What is critical illness cover?

If added to a life insurance policy, critical illness cover allows you to make an early claim on your policy in the event you’re diagnosed with a serious illness (that’s listed within your policy) and left unable to work.

If you have standalone critical illness cover, you’ll be able to make a claim on this policy in the event of serious illness (listed within your policy).

Falling critically ill can bring about a range of new circumstances, arranging adequate critical illness cover can ensure you and your loved ones won’t worry financially.

A lump sum pay out from critical illness cover can be used to help replace any lost income you may experience as a result of being critically ill.

Allowing you and your loved ones to remain in the family home and continue your current lifestyle with no financial worries.

You could also use this money to pay for private medical treatment, make any necessary adaptions to your home or pay for carers.

Why not use our free quote service to compare critical illness policies from some of the UK's leading providers?

What does a critical illness policy cover?

There’s typically a list of 30 illnesses covered by critical illness cover, but this can be more or less comprehensive depending on the provider.

A critical illness usually refers to an illness that can be life-changing, but not terminal or life-threatening.

The most common illnesses covered are heart attack, stroke and some forms of cancer.

Cover also includes illnesses such as:

The illnesses covered in a critical illness policy can vary, therefore it’s essential to shop around and compare quotes from different providers to find the most comprehensive option that’s within your budget.

Put our award-winning team to work and let us do this on your behalf.

Find out the full list of what illnesses are covered by critical illness cover by reading our guide.

When can I make a critical illness claim?

Upon being diagnosed with a critical illness (that’s listed within your policy) during the term, you’ll be able to contact your provider to make a claim.

You may have to provide some medical information during the claims process.

Once your claim has been assessed and deemed valid, your provider will make a lump sum pay out to you.

If you’d rather receive your pay out in monthly instalments to help with budgeting, income protection may be better suited to you.

You’ll receive monthly income payments, rather than a one-off lump sum pay out.

Benefits of critical illness cover

The main benefit of critical illness cover is that it will pay out to you if you’re diagnosed with a serious illness and are left unable to work.

This pay out can be a huge financial help at an already stressful time.

Advantages Disadvantages
Can help to replace lost income if you become critically ill and can’t work Once a claim has been made, the policy will expire
Can easily be added to a life insurance policy for an additional fee Not all illnesses will be covered
Can help to pay for medical treatments or carers Diagnosis must match the insurers definition of the illness
Pay out is tax-free  
No deferral period (time in between being diagnosed and making a claim)  
Can choose level of cover (how much you’d like paid out) at the point of application  

Do I need critical illness cover?

Whether you need critical illness or not will depend on what you want to protect.

You’re more likely to fall seriously ill than die during your working life, so this can highlight the importance of having adequate cover in place.

If you were left unable to work (due to illness) for an extended period of time, could you and your loved ones afford to:

  • Pay off the mortgage
  • Keep up with rent payments
  • Pay bills
  • Cover daily living costs
  • Pay for medical treatments
  • Pay for carers
  • Make adaptions to your home

While it’s likely you’ll receive sick pay from your employer, this may not be enough to cover all of your expenses.


Becoming seriously ill may result in a new set of circumstances for you and your loved ones and you may need more funds to:

  • Pay for medical treatments
  • Pay for carers
  • Make adaptions to your home

A pay out from critical illness cover can help to cover all of this and give you and your loved ones peace of mind.

How much critical illness cover do you need?

Enter your financial commitments to understand the level of cover you require.

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£121,687 is the estimated average outstanding mortgage per household in the UK.

Our property is generally the largest financial commitment any of us will make.

Your life insurance should cover this significant debt should you no longer be around.

£
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According to Money Advice Service, full-time childcare in the UK now costs £242 a week.

The loss of a parent could result in the need for additional childcare whilst the surviving parent increases their hours to account for lost income.

Your life insurance cover should factor in this additional required outgoing.

£
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The average level of debt (minus a mortgage) in the UK is £15,385.

Factoring in any outstanding debts in your name when arranging life insurance ensures this burden is not passed to loved ones.

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You may wish to leave your loved ones an inheritance or lump sum gift upon your passing.

Factoring in the gift amount when arranging your cover will ensure the pay out amount will be sufficient to provide your loved ones with this selfless gesture.

£
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If you are one of the 65% of the UK who are lucky enough to have savings, this could be used as protection if you were to pass away.

Any pay outs from existing life insurance policies and investments can also be used as financial protection for your loved ones if you were no longer around.

Factor this into your required cover amount.

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Your total cover estimate

£ 0

Let us find your best quotes.

Why not let us do the hard work for you and we’ll compare critical illness cover policies on your behalf?

What is income protection?

Income protection is a type of insurance policy that will pay out to you if you’re left unable to work due to illness, injury or unemployment.

Income protection differs from critical illness as instead of a lump sum being paid out, you’ll receive regular (tax-free) income payments to help replace a lost income.

The amount paid out won’t directly mirror your salary and will likely be a percentage of your salary instead (often 50% - 70% is most common).

Your payments will usually commence after the ‘deferred period’ has passed.

In regards to income protection, the deferred period refers to a period of time between the first day you’re unable to work and your payments starting.

The deferred period will be decided at the point of application.

For example, you may decide you want your payments to start a month after you stop working. In this case, your deferred period will be one month.

Other information that will need to be provided at the point of application include:

These factors will help decide the price you pay for your premium.

You’ll need to keep up to date with your premium payments in order for your cover to stay in place.

What does an income protection policy cover?

An income protection policy will provide financial protection in the event you lose your job or become too ill or injured to work for a prolonged period of time.

What you’ll be covered for will depend on the type of policy you take out. Typically you’ll either take out short term or long term income protection.

Short term income protection

Short term income protection will typically cover you from 6 months to a year, or sometimes up to two years depending on the provider.

Typically, your policy will either pay out until you return to work or until the policy expires (whichever happens first).

You’ll have the option to choose from; accident and sickness only, unemployment only or accident, sickness and unemployment.

With accident and sickness only, you’ll receive a pay out if you become ill or injured and are unable to work as a result.

With unemployment only, you’ll receive a pay out due to being out of work (some policies may also pay out due to redundancy, but not all policies will cover this).

Accident, sickness and unemployment is the most comprehensive option as you’ll have the opportunity to receive a pay out if any of these circumstances happen to you.

Often, you’ll also be able to choose a policy which pays out a certain amount to cover specific bills (such as rent or mortgage payments) or you can choose a percentage of your salary.

Short term income protection is well suited to helping you cover rent payments or bills if you’re temporarily unable to work. For example, if you break your leg and it prevents you from carrying out your day to day tasks.


Long term income protection

Long term income protection works in a similar way to short term income protection but will provide more extended cover.

Unlike short term income protection, long term income protection won’t cover unemployment. Instead, you’ll be covered for sickness and accident only.

Your pay out will be a percentage of your annual salary, most commonly this 50 – 70% and you’ll receive it in monthly instalments.

You can have your policy pay out to you until you go back to work until you retire or until you pass away.

By taking out long term income protection, you have the option to be protected for the rest of your working life

When can I claim income protection?

Typically you won’t be able to claim income protection straight away, this is because most employers will offer sick pay for a specified period of time.

Usually, you’ll need to wait at least 2 weeks before making a claim, but you can let your provider know of your illness beforehand.

When your payments begin will depend on the length of your deferred period.

For example, if you chose a deferred period of one month at the point of application, your payments will begin one month after your first day of being unable to work.

With critical illness cover, you can make a claim straight away after the diagnosis of a serious illness (listed within your policy).

Benefits of income protection

The main benefit of income protection is that it will pay out regular income payments in the event you become ill or injured and can’t work or in the event you lose your job.

Payments will be made until you are able to return to work and can be a huge financial help.

This can be most beneficial to those that are self-employed and won’t receive sick pay from an employer.

Advantages Disadvantages
Will pay out to you in the event you become ill or injured and cannot work Will only pay out a percentage of your salary (typically between 50 - 70%)
Can also pay out due to unemployment Can only claim after the deferred period has passed
Payments will be made monthly, making it easy to budget Can’t be added on to a life insurance policy
Pay out is tax-free  
Payments will be made until you return to work  

Do I need income protection?

According to the Association of British Insurers (ABI), around one million workers find themselves unable to work each year due to illness or injury[1].

With this in mind, it can highlight the need to have some form of protection in place to protect yourself in the event you’re left unable to work.

Those who are self-employed may benefit from income protection the most as you won’t receive sick pay from an employer.

Although income protection won’t replace all of your lost income, it can help to act as a type of ‘sick pay’ while you’re unable to work to help you meet your financial commitments.

Does income protection pay out if I die?

No, income protection won’t pay out to your loved ones if you pass away.

It will only pay out to replace your lost income in the event of illness, injury or unemployment.

Life insurance will pay out to your loved ones when you pass away (if you pass away during the term).

Depending on your budget, it’s possible to take out separate life insurance and income protection policies at the same time to ensure your loved ones are protected in either circumstance.

Why not speak to a member of our award-winning team about our life insurance options?

Is income protection better than critical illness cover?

One isn’t necessarily better than the other. The option that’s best for you will depend on your own unique needs and circumstances.

Although there are some similarities between these two types of cover, there are also some key differences to be aware of.

For example, critical illness cover won’t pay out if you have an accident and are left unable to work for a period of time due to injury, whereas income protection will pay out for this.

Critical illness will give you the option to choose your level of cover (how much you’d like paid out based on your current financial commitments), whereas income protection will pay out a percentage of your salary.

Critical illness cover Income protection
Provides a pay out if you fall ill and cannot work Provides a pay out in the event of illness, injury and unemployment
Tax free lump sum pay out Regular tax free income payments
Can easily be added onto a life insurance policy for cost-effective and comprehensive cover Can be taken out simultaneously with a life insurance policy
Typically covered for 30 serious illnesses Pay out can help you keep up to date with your financial commitments
Pay out can help to cover medical fees, pay for carers or make necessary adaptions to your home Can choose between long or short term cover
Can choose the length of your over  
Can choose your cover amount  


Talking to an expert will allow you to work out which cover will most suit your needs.

Although we don’t currently provide income protection here at Reassured, we can compare the different life insurance and critical illness options that are available, to help you make an informed decision.

What does critical illness and income protection cover?

Event Critical illness cover (CIC) Income protection (IP)
Unemployment No Select policies
Injury No Yes
Critical illness Yes Yes
Redundancy No Select policies
Disability Yes - if due to critical illness Yes - if you are unable to work
Accident No Yes

Life insurance with critical illness and income protection

It’s not just a case of one policy or another.

Depending on your budget, it’s completely possible to take out a life insurance policy with critical illness cover and a separate income protection policy.

This will ensure that you’re protected no matter what life throws at you and you and your loved ones won’t have to worry financially.

For example, you may choose to take out a life insurance policy with critical illness to protect your loved ones in the event of death or serious illness and an unemployment only income protection policy to protect you in the event you lose your job.

Life insurance will provide a lump sum pay out to your loved ones in the event that you pass away during the term of your policy.

The pay out can be used to pay off the mortgage in full, cover funeral costs or can be left as an inheritance for your loved ones to enjoy.

Critical illness cover can be added to a life insurance policy for an additional fee and will pay out a lump sum in the event you’re diagnosed with a life-changing illness (listed within your policy) and left unable to work.

If you make a critical illness claim, your life insurance policy will expire.

Income protection can be taken out separately to a life insurance policy and will make regular income payments if you become ill or injured and cannot work or if you lose your job.

While you may not need all of these products, most people would benefit from having some form of financial protection in place.

If you’re unsure about what protection will be best for you, a member of our team will be happy to answer any questions you may have.

Compare life and critical illness cover

We can’t currently compare income protection policies for you here at Reassured, but we can compare various life insurance policies with critical illness cover from some of the UK’s leading providers.

By letting our team of life insurance experts compare quotes on your behalf, they can help to find you a policy that meets all of your needs at the best price.

Our broker service is fully FCA regulated and the best part is, our cover starts from just 20p-a-day.

Why not get in touch for your free quotes today?

Sources:

[1] https://www.moneyadviceservice.org.uk/en/articles/do-you-need-income-protection-insurance

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