Both income protection and critical illness cover provide financial security if life takes an unexpected turn. But they work in different ways — and the right choice depends on your circumstances. One pays out a lump cash sum if you’re diagnosed with a critical illness that’s covered by your plan. The other pays out a monthly amount if you’re unable to work due to an illness or injury.
Here, we’ll explain how income protection vs critical illness cover differ to help you make the best decision for you and your family.
What is income protection?
Income protection pays a monthly tax-free amount to replace some of your lost income if an illness or injury prevents you from working. This gives you peace of mind that you can meet some of your living expenses, such as mortgage or rent payments and household bills. These payments typically continue until you return to work, retire, reach the end of the policy term or pass away, whichever comes first.
As long as your plan remains active, you can claim multiple times if need be. This means that if you return to work but then succumb to another illness or injury that renders you unable to work, you can make another claim and benefit from monthly income protection payments. Examples of conditions covered typically include:
- Serious illnesses, such as heart disease, strokes and cancer
- Musculoskeletal issues, such as broken bones, back pain and repetitive strain injuries
- Injuries from accidents, such as from sports or other recreational activities, workplace accidents or car crashes
- Mental health issues, such as anxiety, stress-related illnesses and depression
Income protection is best for:
- Employees without long-term sick pay
- Those who are self-employed or contractors
- Anyone reliant on a regular monthly income
Pre-existing medical conditions may be excluded as well as some high-risk occupations and self-inflicted injuries. If you have a pre-existing condition or have a high-risk occupation, just let us know — we can find the right insurance provider to give you the cover you need.
What is critical illness cover?
Critical illness cover pays a tax-free lump sum if you’re diagnosed with a serious illness that’s listed in your policy. You can use the funds as you wish, such as to cover your mortgage payments and other living expenses, to replace lost earnings, to pay for expensive medical treatment or to adapt your home, such as the inclusion of wheelchair access. You can make a claim even if you’re able to continue working. Examples of illnesses typically covered include:
- Cancer
- Heart attack
- Stroke
- Organ failure
- Severe head injuries
- Alzheimer’s disease
- Multiple sclerosis
- Parkinson’s disease
- Permanent disability
To receive a payout from your policy, the illness needs to meet the definition as set by the insurance provider. For example, you may not be able to claim for an illness unless you have permanent symptoms or you may not be covered for hereditary diseases. We will ensure that you’re fully aware of the inclusions and exclusions of a critical illness policy before you proceed.
Unlike income protection, you can only claim once on your critical illness policy. Once you’ve made a claim, your policy will end. This type of cover is best for:
- Families who would need a lump sum to clear a mortgage
- Parents who want to fund childcare or education costs
- Those needing to cover major financial commitments
Income protection vs critical illness cover: key differences
Whilst income protection and critical illness cover both provide you with a financial safety net if you suffer from a serious illness or injury, there are key differences between them, as summarised below:
- Income protection:You receive ongoing monthly payments and can make multiple claims. Income protection provides financial cover if you’re unable to work as a result of an illness or injury. The payments begin at the end of your chosen deferred period.
- Critical illness cover:You received a one-off lump sum and can only claim once. Critical illness cover provides financial protection if you’re diagnosed with one of the listed illnesses in your policy. You need to survive for a specified period, such as 14 days, after diagnosis to receive payment.
- Many families combine both options to cover different risks.
Which cover should you choose?
With similarities between the two types of cover, it can be hard to know which one to choose. It really depends on your personal circumstances, financial set-up and concerns for the future. Are you the main earner in your household? Do you have any savings? Do you benefit from sick pay at work and, if so, how long does it last and does it cover your outgoings? Is there a history of ill-health in your family? Examples of who might choose which type of cover are:
- A young professional in Bromley may benefit more fromincome protection.
- A family in Orpington with a mortgage may prioritisecritical illness cover.
- Many choose ablend of both for complete peace of mind.
Get tailored advice for your protection needs
Financial protection isn’t based on a one-size-fits-all solution. You need to weigh up your situation, what’s important to you and which option fits in best with your budget. Income protection can help support you and your family if you’re unable to work, whereas critical illness cover can pay for expensive treatment costs or lifestyle changes resulting from the condition.
Our mortgage and protection advisers are here to help you make the right decision. They’ll listen carefully to your situation and provide you with impartial advice on the options available to you. That way, you can make an informed decision on the financial safety net you choose, giving you peace of mind that the right cover is in place. Speak with one of our dedicated protection experts, Gemma Weekes, today for advice that’s tailored to your income, mortgage and family needs.