Is income protection better than critical illness cover?

Income protection (IP) and critical illness cover (CIC) are both policies that can be taken out to provide an extra safety net of cover.

An income protection policy and a life insurance policy can be taken out simultaneously to provide cover during your working life, as well as protecting your family after your passing.

Whereas critical illness cover can be added to a life insurance policy to protect against serious illness for an additional fee, with some providers also offering standalone policies.

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

This article will help to give you a better understanding of:

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Reassured Advice can help you to compare income protection and life insurance with critical illness cover quotes to help you find the right policy.

By comparing both cover options you can rest assured that you’ve secured the right policy to meet your needs.

Reassured Advice are FCA regulated and quotes are fee-free and without obligation.

Why not get in touch for your FREE quotes today?

What’s the difference between income protection and critical illness cover?

Both policies will pay out to you if you’re diagnosed with a serious illness and left unable to work, providing much needed financial support to replace lost income.

The main difference between the two policies is:

  • How much you’ll receive
  • How you receive your payment
  • The circumstances and types of illness you will be covered for

Income protection will pay out a percentage of your usual income, this can be between 50% - 70% depending on the provider, and you’ll receive this in monthly payments.

Critical illness cover is similar to life insurance in that you’ll set a sum assured at the point of application (an amount enough to cover all financial obligations) and this will be paid out as a lump sum after a successful claim has been made.

Once you’ve made a critical illness cover claim, your policy will expire. Depending on the type of income protection you take out, it can be possible to make multiple claims throughout the lifetime of your policy.

Income protection
Income protection
Critical illness cover
Health
Can claim in the event of illness or injury that prevents you from workingAllows you to make an early claim on your life insurance policy in the event you’re diagnosed with a life changing illness
Can pay out up to 70% of your usual incomeProvides a cash lump sum pay out
Provides monthly tax-free paymentsTypically covered for 30 illnesses (this can be more or less comprehensive depending on the provider)
No set list of illnesses or injuries you can claim forCan be added to a life insurance policy for an additional fee under one premium
Can be taken out simultaneously with a life insurance policyCan be purchased as a standalone policy through some providers
Can be possible to make multiple claims on your policyOnce claim has been made the policy will expire
Can secure cover up to age 59 with most providers, although some offer cover up until the age of 64Cover available up to age 70

EventIncome protection
Income protection
Critical illness cover
Health
Unemployment Cross Cross
Injury List icon Cross
Illness List icon List icon
Redundancy Cross Cross
Disability List icon

Yes if not pre-existing and leaves you unable to work
List icon

If caused by a critical illness named on your policy
Accident List icon Cross


Keep reading for a full income protection vs critical illness policy comparison…

What is income protection?

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

As we’re more likely to fall ill than pass away during our working life, income protection can provide essential financial support while you’re out of work.

The amount paid out to you won’t directly mirror your salary. Instead, it will be a percentage of your usual income, (often up to 70%).

Rather than a lump sum being paid out to you, which could be tricky to budget, income protection will pay out to you in monthly (tax-free) instalments which can be used to cover:

  • Rent or mortgage payments
  • Food shop
  • Household bills (gas, electricity, water, Wi-Fi etc)
  • Childcare expenses
  • Transportation (public transport, petrol, maintenance)
  • Credit card bills
  • Loan payments
  • Leisure costs

Payments will commence once your deferred period has come to an end (your deferred period is the period of time in between your first sick day and when your payments begin, this is specified at the point of application. You can read our full income protection deferred period guide to find out more).

Your payments will then continue until you return to work, the payment period comes to an end, your policy expires, or you retire (whichever happens first).

Why not contact Reassured Advice to compare income protection policies from all of the UK’s leading providers?

What is critical illness cover?

Critical illness cover allows you to make an early claim on your life insurance policy in the event you’re diagnosed with a serious illness (that’s listed within your policy).

Falling critically ill can bring around a range of new circumstances, having critical illness cover in place can give peace of mind that you won’t worry financially should this happen.

Upon being diagnosed with an illness (that’s listed within your policy) you can make a claim. Once the claim has been deemed valid, you’ll receive your lump sum pay out.

A pay out from critical illness cover can help to:

  • Replace a lost income
  • Cover medical bills
  • Pay for carers
  • Fund necessary adaptions to your home

Once a claim has been made, the policy (including life insurance) will expire and you’ll need to find new cover.

It’s also possible to secure a standalone critical illness policy from some providers.

Why not get in touch with a friendly member of our team to compare life insurance with critical illness cover quotes?

What does an income protection policy cover?

An income protection policy will cover you for accident and sickness.

Common claims made for income protection include:

Income protection offers more flexibility than critical illness cover as you’ll be able to claim for any illness or injury that leaves you unable to work for a prolonged period of time.

However, you won’t be covered for any pre-existing illnesses, these are conditions that are present at the point of application and will need to be declared to the provider.

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 insurer.

By ‘critical illness’ insurers typically mean an illness that’s life-changing but not life-threatening.

The most common illnesses covered are heart attack, stroke and some forms of cancer. But can also include:

Read our complete guide to find out the full list of what illnesses are covered by critical illness cover »

As the illnesses covered by critical illness cover can vary it’s important to shop around and compare quotes to find the most comprehensive protection.

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

What are the benefits of income protection?

The main benefit of income protection is that it will pay out to you to help replace lost income while you’re unable to work.

This can be especially beneficial for those who are self-employed or those who don’t receive sick pay from an employer, as long-term income protection can cover you up until retirement.

The payments received from an income protection policy can provide the necessary finances for you and your loved ones to continue your current lifestyle with minimal financial disruption.

This also allows you to avoid having to dip into any savings you may have been saving for something else.

Advantages
List icon
Disadvantages
Cross
Will pay out to you if you can’t work due to injury or illnessDoesn’t cover unemployment
Monthly tax-free payments for easy budgetingWon’t pay out full income (will pay out up to 70%)
Can be possible to make multiple claims during the lifetime of your policyWill need to wait until deferred period has passed before you receive payments
Especially beneficial for self-employed workers who don’t benefit from sick payCan’t be added to life insurance, will need to be bought as a separate policy


Speak to Reassured Advice to find out everything you need to know about income protection and obtain free and personalised quotes.

What are the 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 and can help you to continue your current standard of living.

While income protection will pay out in monthly instalments, some may find a lump sum pay out more beneficial to pay off larger expenses such as medical bills or paying for long term carers.

Advantages
List icon
Disadvantages
Cross
Can help to replace lost income if you become critically ill and can’t workOnce you have made a claim your policy will expire (including your life insurance)
Lump sum pay out will be made to help take care of large expensesNot all illnesses are covered by critical illness cover, limiting what you can claim for
Can easily be added to a life insurance policy for an additional feeYour diagnosis must match the insurers definition
Pay out is tax-freeWon’t be covered for injuries (unless you suffer total disability)
No deferral period
Can choose your sum assured (the amount you’d like paid out)

How much income protection do I need?

Unlike critical illness cover, with income protection you can’t choose your sum assured.

Instead, your monthly benefit amount is calculated using your usual income plus any other sources of income available to you.

Typically, providers will offer to pay out up to 70% of your usual income, but this can vary depending on who your secure cover with.

For this reason, it’s wise to shop around and compare multiple quotes to find the provider who offers to pay out the most.

You can use the calculator below to input some common financial commitments to get an understanding of how much cover you’re likely to need.

How much income protection insurance do you need?

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

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£723 a month is the average monthly mortgage payment in the UK, with the average monthly rental price coming in at £700.

The majority of our monthly income will go towards rental or mortgage payments.

For this reason, it’s essential to have precautions in place to ensure you could keep up to date with your payments if you weren’t receiving your usual income.

Monthly income protection payments can help to cover this large expense and ensure you can stay in your home.

£
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According to the Money Advice Service, the average household spends £340 a month on household bills.

This includes electricity, gas, TV and broadband.

£
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Childcare costs are on the rise with it now costing £137.69 per week for part-time nursery for a child under the age of two.

That’s over £550 per month - is this an amount you’d be able to keep up with if you were unable to work?

Becoming ill could also result in the need for additional childcare while you attend doctors’ appointments or medical treatment.

£
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The average household in the UK spends around £97 a week on their food shop, totaling £388 a month.

While this may seem like a small amount in comparison to some of the other expenses mentioned, the food shop is often where we try to scrimp and save when we fall on hard times.

Income protection can take care of the cost of your weekly food shop, as well as many other essential costs.

£
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At the beginning of 2020, credit card debt in the UK was at £2.1 billion, with almost 27 million UK residents in some kind of debt.

Becoming unable to work could make it hard to keep up with credit card or loan payments (including car finance or other financed goods).

Failure to keep up with payments could result in additional interest being incurred or late fees issues - resulting in a higher total needing to be paid.

£
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The average spent on public transport each month comes to an average of £94.

This includes the cost of public transport, as well as petrol and diesel vehicles.

While this amount may reduce while you’re unable to work as you won’t need to commute there may be additional spending on public transportation if your illness or injury leaves you unable to drive.

£
£

Your total cover estimate

£ 0

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How much critical illness cover do I need?

How much critical illness cover you need can be calculated in the same way as life insurance.

However, rather than thinking about what would need to be covered for your loved ones should the worst happen, you’ll need to consider what key expenses would need to be taken care of if you were out of work.

Is income protection worth having?

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

This highlights the need to have some form of protection in place to make sure you wouldn’t struggle financially if you were left unable to work.

In particular, you may benefit from income protection if:

  • You’re self-employed
  • You don’t receive sick pay from an employer
  • You receive a minimal sick pay benefit
  • You don’t have your own personal savings
  • You don’t have any other financial protection (such as critical illness cover) in place

Although income protection won’t replace all of your lost income, it can provide crucial financial support by enabling you to keep up with essential financial commitments.

If you’re not sure whether income protection is the right choice for you, why not speak to a friendly member of the Reassured Advice team?

Is it worth having critical illness cover?

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

If you believe you would benefit more from receiving a lump sum pay out, rather than monthly payments, critical illness cover may be a more suitable option.

Even if you receive sick pay from an employer, it’s likely that the amount you receive won’t cover all essential obligations (such as a mortgage). A pay out from critical illness cover can provide the funds to cover any larger expenses.

If you’d rather receive monthly income payments rather than a lump sum pay out or you want to be covered for accidents and other non-critical illnesses, you may be more suited to income protection.

Does income protection pay out if I die?

No, income protection will not pay out to you if you pass away.

An income protection policy will only pay out to you if you become unable to work due to sickness or accident.

If looking for protection for your loved ones in case of your death, you may want to consider family life insurance.

Does critical illness cover pay out if I die?

No, a critical illness cover policy won’t pay out to you if you pass away.

If taking out standalone critical illness cover, the policy will only pay out to you if you’re diagnoses with a specific illness listed within the policy - death is not included.

If you have a life and critical illness policy and have already made a critical illness claim on your policy, then the funds will have been paid out to you and your cover will have expired. Therefore, the policy will not pay out if you die.

However, if you have life and critical illness cover and have not made a claim for critical illness, the policy will pay out if you die within the policy term.

Income protection or critical illness?

Hopefully this article has given you a better understanding about income protection vs critical illness cover.

Which option is right for you will depend on various personal factors such as your lifestyle, what you want to protect and your available budget.

Those who’re self-employed and/or do not receive sick pay from an employer, may wish to secure income protection as a long term policy can provide protection for the rest of your working life, providing peace of mind.

Those who receive sick pay or have other forms of finance available may be more suited to critical illness cover as the lump sum pay out can help to top up any other forms of finance.

Speaking to an expert is always the best idea if you’re unsure about which cover option is right for you.

Why not speak to the Reassured Advice team to find out everything you need to know about income protection and critical illness cover?

Compare quotes to find the right cover

Not only can Reassured Advice compare income protection quotes from the UK’s leading providers, but they can also compare life insurance with critical illness quotes.

A friendly member of the team will be on hand to answer any questions you may have about either type of policy.

This helps to provide you with all the information you need to make the most informed decision about whether income protection or critical illness cover is right for you.

What’s more, quotes are personalised, fee-free and no-obligation.

Income protection starts from just 50p-a-day and life insurance with critical illness cover starts from 33p-a-day so why not get in touch?

Sources:

[1] https://www.abi.org.uk/globalassets/sitecore/files/documents/publications/public/2014/protection/welfare-reform-for-the-21st-century.pdf

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