Income protection and critical illness cover – what’s the difference?

Income protection and critical illness cover

Most of us don’t like to think about the prospect of becoming ill. We’d prefer to think it’s something that’ll happen to someone else. The trouble is, becoming too ill to work for a long time, or receiving a serious diagnosis, are eventualities that could happen to any of us. 

The good news is, there are insurance products out there that can provide exactly the financial support you’d need if either of these things happened to you – namely: income protection and critical illness cover. These are both types of cover that pay out for medical-related reasons, providing peace of mind that you’d be able to keep up with the cost of life if an unfortunate illness, accident, or diagnosis came your way.

There are significant differences between these two types of cover, though – and it’s important  to know what these are before choosing which type of cover might be best suited to you.

What do income protection and critical illness cover protect against?

Income protection covers you if you’re not working for any medical reason. That could be any physical or mental illness or injury that leaves you unable to do your job, so you’ve been signed off by a doctor. This kind of cover protects you in the event that you’re unable to work for a long time. Most of us would be financially impacted if this happened to us, as savings and sick pay (if you have them) can only last so long.

Critical illness, on the other hand, covers you for any of the illnesses or conditions listed in the policy you buy. This usually includes things like cancer, heart attacks, strokes, organ failures, loss of limbs, hearing or sight, MS, Alzheimer’s, etc. The idea of this kind of cover is to give you a financial cushion in the event of a diagnosis – ensuring you don’t have to worry about money and can concentrate on getting better or adjusting to your new condition.

As you can see, these are both products designed to protect you in case of illness or injury – but the conditions for claiming are very different. None of us can know exactly what will happen in the future, but which of these is most suitable for you will depend on your personal circumstances, and on which scenario has the most potential to impact you financially.

How do income protection and critical illness cover pay out?

Another key difference between these two illness-related insurance products is in the way they pay out. Income protection pays out a monthly amount if you can’t work because of an illness or injury – the idea being that it replaces part of the monthly income that’s missing. One important thing to know is that all income protection policies come with a waiting period (usually 1, 2, 4, 8, 26 or 52 weeks), which is the amount of time you wait before starting to receive your payments after making a claim. The longer you wait, the cheaper your policy will be – but you’ll need to be able to support yourself financially during that time. So, if you went for an 8 week waiting period, you’d be off work for 8 weeks before you start receiving your income protection payments.

Meanwhile, critical illness cover pays out a lump sum as soon as you’re diagnosed with one of the illnesses or conditions listed in your policy – it’s as simple as that. Obviously it’s very important to familiarise yourself with what those illnesses are before you buy a policy, so you know exactly when you’ll be able to claim the lump sum. It’s worth noting that lots of policies also cover some additional, less severe illnesses – if you get one of those, you’d be able to claim a proportion of your lump sum (and still be able to claim the full amount later, if you get one of the main illnesses). The same applies to children’s illnesses – lots of policies cover a list of those too, and pay out a proportionate amount for them. To find out the ins-and-outs of all of this, including the varying ways in which critical illness cover pays out, this guide is very useful.

Who needs income protection and critical illness cover?

Both income protection and critical illness cover would suit anyone who’d be financially affected by illness. This usually means people who have financial commitments, like having rent or mortgage and bills to pay (which is most of us!), and people who have financial dependents – i.e. other people who rely on our income in some way. This is usually a partner, with shared financial commitments, children, or other relatives. 

Having income protection in place can be particularly important for self-employed people, who don’t have the safety net of sick pay, so might run into financial problems more quickly than those who do have sick pay to fall back on.

Whatever your circumstances, if you think a long-term or critical illness could leave you struggling financially, it’s always a good idea to have some kind of protection in place – and income protection and critical illness cover are the right products to explore.

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