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

7 min Read Published: 08 Apr 2020

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 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 and benefits paid monthly
  • the amount of income covered is typically 60-65% of the policyholder's 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 the cover is provided free by an employer, then it may be taxed
  • pre-existing conditions may be excluded

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
  • you have the option of selecting guaranteed or reviewable premiums

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

The best way to buy income protection insurance is to speak to an independent income protection specialist*. An independent specialist will be able to access every insurance company on the market and provide advice as to which is best for your own circumstances. They will also be able to help you to complete the application forms over the phone, chase the insurance company on your behalf and will even be able to provide help and assistance if you ever need to claim on the policy. Best of all, their service is free and you'll qualify for £50 cashback should you take out a policy. Simply complete this short form* to receive a callback at a time that suits you.

Find the best value income protection policy for you - plus £50 cashback*

Complete this short form to receive a callback and get your tailored income protection insurance quote from one of the UK's leading income protection insurance specialists.

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 speak to one of the UK's leading critical illness insurance specialists* and get a quote. Complete the short form and they will call you back at a time that suits you.

Get an instant life or critical illness insurance quote - plus £50 cashback*

Complete this short form to speak to an independent expert that specialises in life and critical illness insurance

Find the best value life insurance policy*

If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article – LifeSearch 

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