Income Protection vs Critical Illness: Which Insurance is Right For You?

Nov 20, 2023 | 0 comments

Both critical illness and income protection insurance policies are designed to provide financial security in difficult circumstances. However, as they are very different financial products, it is important to ensure that the policy you purchase will provide the protection you need, when you need it most.

What is Income Protection?

Income protection insurance is designed to pay out on a monthly basis if you are unable to work as a result of injury or illness. Regular payments will continue to be made until you return to work, your plan ends, you reach your retirement date, or you pass away.

There are many advantages to income protection insurance, particularly as payments are provided on a tax-free basis. However, as with all insurance policies, there are also limitations to consider. For example, some policies may exclude existing medical conditions, and in most cases, your full income will not be covered. Generally, income protection cover will pay out between 50% and 70% of your typical gross earnings.

What is Critical Illness Cover?

Critical illness insurance policies are designed to pay out a cash sum on a one-off basis if you are diagnosed with a critical illness covered by your policy. Critical illness cover policies are flexible insofar as it is possible for policy owners to choose how much cover they wish to take out during the application process.

A number of diagnoses are generally covered by this type of insurance policy, including strokes, heart disease, and many different types of cancer. However, it is essential to remember that the insurer will ultimately be the one to determine if a diagnosis aligns with its definition, as not all illnesses will be covered.

Income Protection vs Critical Illness Cover: Which Should I Choose?

Income protection provides you with the ability to protect your income in the face of challenging life circumstances. This means it could help you to continue to pay the bills if an illness or injury prevents you from working, which can be particularly beneficial if you do not meet the criteria for statutory sick pay.

If you are diagnosed with a life-changing or serious illness that is covered by your critical illness cover policy, the cash sum you receive could be used in a variety of different ways, including paying off your mortgage, covering every day bills and expenses, or to aid your recovery.

Income Protection vs Critical Illness Cover: Costs

Income protection insurance premiums are generally very affordable, however, they may increase over time as more people tend to claim on this type of policy. Conversely, critical illness cover premiums are generally more expensive, however, successful claimants will receive a quick injection of cash, which can be invaluable when experiencing a serious illness.

Income Protection vs Critical Illness Cover: Payout Times

It is only possible to claim income protection insurance for the time that you are unable to work. However, it can take between four and 25 weeks to receive your first payment, so an immediate injection of cash cannot be guaranteed.

While payments are made quickly after a successful claim, critical illness cover is not designed to top up your regular income and will, instead, provide peace of mind to those facing long-term financial hardship without a cash payout.