Do I Need Critical Illness or Income Protection?

Wednesday, 3 August 2022

Income protection insurance and critical illness cover are both designed to safeguard your income in case of illness or injury, yet there are essential differences between the two.

Read on to find out everything you need to know about both types of policies, how they work and the advantages and disadvantages of each.


Do I need critical illness cover and income protection?

Being able to rely on financial cover in the event of illness or injury is essential. Whether you are in good health or at risk of developing particular illnesses, investing in critical illness or income protection can provide a lifeline to ensure you continue to be able to afford essential expenses such as a mortgage or rent as well as being able to look after your loved ones.


The differences between critical illness cover and income protection

Critical illness cover pays out a single lump sum if you are diagnosed with specified serious conditions, which are defined when you purchase the policy. The cost will vary depending on the state of your health, your age and your lifestyle.

Income protection, on the other hand, will provide you with a guaranteed regular source of income – a percentage of your salary – if you are unable to work due to an accident or an illness, until you have fully recovered.

An important difference between the two is that income protection can safeguard you against a wider range of illnesses and injuries, whereas critical illness tends to cover only a set list of common – and usually particularly serious – illnesses.


Income protection vs critical illness

As each offers different types of benefits, you may feel more comfortable choosing one or the other – or both – depending on your current circumstances.

While you are usually more likely to claim on income protection insurance, as this includes a broader range of illnesses and injuries, it only provides income while you are unable to work, and may overall pay out a lower amount than a critical illness policy.

However, critical illness cover provides you with a reliable financial boost at a time when you may be particularly struggling, allowing you to take care of expenses you may otherwise be unable to cope with.

Purchasing both types of cover may be particularly beneficial if, for instance, you were to be diagnosed with a serious illness.

If you were able to successfully claim on both, you could use the monthly income provided by income protection to cover your day-to-day living costs, and rely on the critical illness cover cash boost to cover extra expenses as a result of your condition.


How does income protection work?

If you fall ill or are injured, income protection policies will usually pay between 50 to 70% of your gross monthly earnings each month until you are able to return to work, or until you retire or pass away.

This type of policy covers most illnesses that cause you to be unfit for work, and you can claim as many times as you need to before you reach the end of the policy period.


How does critical illness cover work?

This type of cover provides a one-off, tax-free payment if you fall ill with one of the conditions specified in your policy, after which your policy ends.

The number of illnesses critical illness insurance covers depends entirely on the type of policy, although the list usually includes between 25 and 50.


How much is income protection insurance?

The cost of income protection insurance will depend on many factors such as:

  • The type of policy and the level of cover
  • Personal factors such as age, smoker status and medical history
  • The length of your deferred period – the waiting time between the beginning of your illness and when you first receive payment
  • Your claims period – how long you receive payments for
  • Indexation – allows your monthly pay-outs to rise in line with inflation
  • Types of premiums


What is group income protection?

Group income protection is provided to employees through their employers, often as part of a benefits package. It can be funded by the employer, the employee or a mixture of both, depending on the policy.

It provides a regular replacement income for an employee if they are not able to work due to an injury or illness until they are able to return to work.


Exclusive income protection and critical illness advice

Whether you have decided to invest in critical illness or income protection based on the information above, it is important to remember that both boast a variety of benefits and should be regarded as an essential investment.

If you have any further queries or concerns or would like insurance advice on topics such as life insurance, business protection, critical illness or income protection, please contact Michael Reed Wealth Management.



Is income protection better than critical illness cover?

Both types of cover offer essential benefits, protecting you financially should you become ill or suffer an injury. Though either may be preferable depending on your circumstances, neither is inherently better.  

What is the difference between income protection and critical illness?

Income protection protects you against a broader range of illnesses, providing monthly pay-outs, while critical illness offers a one-off tax-free payment should you become ill as a result of one of the illnesses covered in your policy.

Is life insurance better than income protection?

Life insurance comes into effect when you pass away, with payments being made to your loved ones via a one-off lump sum. Income protection, on the other hand, provides monthly payments in the event of an illness or injury that causes you to be unable to work.

Is critical illness cover worth having?

Whether you are likely to develop a particular medical condition, are at risk of injury or are in good health, critical illness cover is an essential investment that will ensure you are protected financially should these circumstances present themselves.

Is it worth taking out income protection insurance?

Falling ill and being unable to work as a result can cause significant financial hardship. Investing in an income protection will ensure you are covered in the event of an injury, an illness or temporary and permanent disability.

How does income protection benefit work?

Falling ill and being unable to work as a result can cause significant financial hardship. Investing in an income protection will ensure you are covered in the event of an injury, an illness or temporary and permanent disability.

How long does income protection pay out for?

Most income protection insurances will provide payments until you are well enough to return to work or until you retire, pass away or your policy has ended.

How do I claim income protection?

If you have purchased income protection cover, there are several steps to take in order to make a claim. In most cases, you’ll need to contact your insurer, provide proof of your earnings and proof that you are unfit for work. Your insurer will need to confirm you are providing accurate and valid information before the policy starts paying out.  

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Michael Reed

Michael Reed is a Chartered Financial Planner with years of experience, providing financial advice with both conviction and empathy.

Dedicated to maximising wealth, minimising tax and protecting individuals and businesses against financial risk, Michael has expertise in specific areas of wealth management including pensions, ISAs, investment planning and shareholder protection.