Updated: July 30, 2019

Income Protection Insurance vs Critical Illness Cover

Unsure which policy will best protect your income? We'll explore the benefits of critical illness cover vs. income protection, and how to select the right policy for you

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: July 30, 2019

Being unable to work due to a long-term illness or injury with (in some cases) no clear timeline as to when you will be able to return is a worrying thought for all of us. But what if this thought became a reality? How would you be able to cope financially? How would you pay your mortgage and other outgoings?

With sound financial planning, you can protect against such risks using a range of insurance products designed to help in such circumstances where you are unable to work due to your health. In particular, income protection insurance and critical illness cover.

This article explores the key differences between income protection and critical illness whilst looking at how you can combine both types of cover together.

If you’d like to know more about how both income protection and critical illness cover could help protect you and your family, call us on 0808 189 0463 or make an enquiry and we will arrange for an advisor we work with to get in touch.

What is the difference between income protection and critical illness cover?

The differences between critical illness cover and income protection insurance are a little more convoluted as both types of insurance have a number of crossover features.

Both critical illness and income protection are designed to provide financial assistance in the event of an unexpected illness or injury with no restrictions on what the proceeds can be used for.

However, there are a number of key differences between income protection and critical illness as outlined here:

  • How the money is paid out in the event of a claim
  • The amount of money paid in the event of a claim
  • Types of illnesses covered by each policy
  • The number of claims that can be made

How the money is paid out in the event of a claim

Critical illness cover

In the event of a claim critical illness cover pays a one-time, tax-free lump sum payment to the insured, which can be used for whatever purpose they require.

For example, lots of people link critical illness insurance to their mortgage so, in the event of a serious illness or condition, the largest household debt would be paid off.

Income protection

Income protection pays a regular monthly amount, based on the insured’s annual earnings. These payments can continue until you go back to work or, potentially, until you retire if your condition is so serious that you’re unable to work again.

Income protection insurance also usually has a deferred period before payments will commence, which can be anywhere from 1-12 months.

If, as part of your employment contract, you’re entitled to full pay for, say, three months, you can set the deferred period so your income protection payments start after this period. The longer the deferred period, the lower your insurance premiums will be.

The amount of money paid in the event of a claim

  • For critical illness cover the amount is simply the sum assured, whatever that may be, and it is paid as one lump sum.
  • The amount paid for income protection is a percentage of your usual monthly earnings. The total amount that can be paid will vary depending on the provider. Most insurers will offer a maximum of between 70% to 80% of your gross monthly earnings for income protection policies.

Types of illnesses covered by each policy

Critical illness insurance providers will have a list of illnesses and conditions that are covered under their policy. If you are diagnosed with an illness that is not covered, you will not be able to make a claim.

Income protection insurance generally offers a broader range of circumstances relating to illness where the insured will be able to make a claim. In essence, income protection covers most types of illnesses and conditions that would leave someone unable to work.

As an example, if you were involved in a car accident that left you unable to work for six months, you could make a claim on your income protection plan, whereas you could only make a claim on a critical illness plan if you sustained an injury which matched a condition within the policy (i.e. loss of a limb or blindness).

The number of claims that can be made

Critical illness insurance allows for a one-time claim to be made and once the sum assured has been paid, the policy cover expires. An income protection plan allows for multiple claims during the term of the policy.

If you’d like to find out more about the key differences between critical illness cover and income protection, get in touch and we can arrange for a specialist to discuss this further with you.

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Is it possible to combine both types of cover?

Yes, this is possible, albeit as standalone policies. If you’re wanting to ensure that you have the most comprehensive cover to protect you and your family against the risk of death, critical illness or any condition that would leave you unable to work, then a combination of life and critical illness cover alongside an income protection plan may be the best solution.

Speak to an insurance expert

If you’re interested in both income protection insurance and critical illness cover and would like to speak with an expert in order to explore what options are available to you, call us today on 0808 189 0463 or make an enquiry here.

Ask a quick question

We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in critical illness cover. Ask us a question and we'll get the best expert to help.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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