5 min Read
19 Oct 2016

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

Reader Question: What is the difference between income protection and critical illness insurance?

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

I've been looking into taking out insurance but am confused over some of the terms, such as income protection insurance and critical illness insurance. What is the difference between income protection and critical illness insurance?

Many thanks, Steve.

My response:

There is often confusion between the various types of insurance available on the market, in particular between income protection insurance and critical illness insurance. Below I explain what income protection insurance and critical illness cover are and why you might need them.

What is income protection insurance?

  • income protection is designed to provide an income if the the policyholder is unable to work due to sickness, or as a result of an accident
  • benefits will be paid until the policyholder returns to work or retires or the end of the policy term, whichever occurs first
  • benefits will only commence once a pre-agreed deferred  period has passed, this would generally be between one and twelve months, the longer the deferred period the lower the premium
  • income protection insurance is a long term policy with premiums paid monthly
  • the amount of income covered is typically 60-65% of the policyholders  monthly income normally enough to cover the mortgage and basic living expenses
  • cover may continue until retirement or prior cancellation
  • any benefits received are tax free unless cover is provided free by an employer, then they may be taxed
  • pre-existing conditions are not covered under an income protection policy

Why do I need income protection insurance?

  • if you receive only statutory sick pay when off work
  • if you only receive your full pay for a limited period of time when off work
  • to make sure your basic living expenses are covered whilst off work

What is critical illness insurance?

  • critical illness insurance is a long term policy that will pay a lump sum if you are diagnosed with one or more of the critical illness detailed in the policy
  • if paid out the lump sum can also be used to provide a regular income
  • designed to provide the money to pay off bills or make alterations to you home, such as wheelchair access
  • a typical critical illness policy will cover conditions such as - heart attack, stroke, certain cancers and conditions like multiple sclerosis
  • all illnesses have to be judged serious enough for you to qualify for a payout
  • the amount of cover is selected by the policyholder and not linked to income

Why do I need critical illness insurance?

  • to provide  the finances to support your family if diagnosed with a critical illness
  • whilst life insurance will provide cover in the event of death (and can include cover which pays out if you are terminally ill with less than 12 months to live), critical illness insurance will provide the cover when you are critically ill
  • provide peace of mind to you and your family

How to find the best income protection policy for you

First of all compare income protection quotes with this online income protection tool. I would also recommend speaking to an adviser specialising in income protection and life insurance. I have vetted the service provided by this income protection specialist which I would readily recommend. They are well regarded for their expertise and level of customer service. 

Find the best value income protection policy for you

Get an instant income protection insurance quote in seconds, comparing the whole market

Find the best value income protection policy

Compare the best critical illness insurance policies

If you are looking for critical illness cover it can be confusing as there are over 200 versions of critical illness cover available. So first of all I suggest that you compare critical illness insurance prices online using this comparison tool and get a quote. Make sure you enter the level of critical illness and life insurance cover you need in the relevant boxes.

Get an instant life insurance quote

Get an instant life insurance quote in seconds, comparing the whole market

Find the best value life insurance policy

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Article overview

Key points

  • What is income protection insurance?
    • income protection is designed to provide an income if the the policyholder is unable to work due to sickness, or as a result of an accident
  • What is critical illness insurance?
    • critical illness insurance is a long term policy that will pay a lump sum if you are diagnosed with one or more of the critical illness detailed in the policy
  • Compare income protection quotes with this online income protection tool
  •  Compare critical illness insurance prices online using this comparison tool

Written by Damien

Damien is one of the most widely quoted money and investment experts in the national press and has made numerous radio & TV appearances. He created MoneytotheMasses.com while working in the City when he became disillusioned with the way the public were left to fend for themselves because they could not afford financial advice.

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