Income protection vs critical illness

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 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.

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.

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.

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.

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).

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.

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.

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.

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.

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