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Critical illness cover vs income protection

People often ask which type of cover is best, income protection insurance (IP) or critical illness cover (CIC)?

Although this might sound quite simple, this is actually a difficult question to answer because it’s based on a number of elements. Even though there is a strong argument to suggest that there are benefits to having both, that depends on affordability.

Here we consider what are the Pros and Cons for each type of policy and how they might work well for you.

A picture of a stopwatch

60-Second Summary – Critical illness cover vs income protection

Critical illness cover and income protection insurance are often confused for each other as aspects of these policies are similar. There are some key differences that you should understand which can make one a better choice for certain people compared to the other. Ultimately, both policies are useful and have their own Pros and Cons, which one feels ‘right’ is up to you.

  • Income protection insurance will pay you a monthly income (tax free) to replace lost earnings or salary while you are unfit to work.
  • You can use your income protection claim payments to pay your mortgage or rent, and pay for other essential monthly outgoings so that your family doesn’t suffer any financial loss.
  • Critical illness cover pays out a tax free lump sum usually on diagnosis of a serious illness to help you and your family financially through difficult periods.
  • A critical illness cover claim can be used as a safety net to pay for many things including mortgage payments, or clear a proportion of your mortgage, rent payments, and other major debts and outgoings.
  • The best way to figure out which is best for you is to get proper advice from an insurance expert and to consider your options very carefully.

Some important questions that you might want to consider before you take out income protection insurance or critical illness cover:

  • Am I more concerned about short term sickness or serious illness?
  • You might be more concerned about the financial impact of short term illness to longer term serious illness. Also, you might have a sickness policy with your job (e.g. teachers, nurses, civil servants, etc.) that pays you for a longer period of time.

    Critical illness cover will pay out a cash lump sum which is useful but it would be up to you to budget correctly to make sure this money lasts and covers everything you need it to. Income protection insurance pays you a monthly income for a set period of time (usually 12 or 24 months at most). This may make it easier for you to manage your money each month.


  • Do I have savings that I could use if I wasn’t able to work because of serious illness?
  • Some people have a pot of savings or have surplus funds to fall back on if they were to become seriously ill. You might also have factored in some savings for your family if you couldn’t work for a longer period of time.

    Think carefully about if you have enough financial support if you couldn’t work and if an insurance policy is something that you can afford to pay out for long term.

  • Will I still get paid from my business if I can’t work?
  • Some business owners and senior directors might also still receive a payment or a dividend from their business or employment even if they can’t work. For example, if you own a company with staff that would still continue to work without you.

    There are also forms of government that may be available (particularly useful for self-employed business owners) such as Employment and Support Allowance. This will provide some funds to help support you but can take several weeks (up to 13 weeks) to pay out. Insurance policies will pay out higher amounts and usually much more quickly.


  • Can I afford to pay for extra insurance policies?
  • You might also only have a certain budget of surplus money that you can afford to pay each month for these insurance policies. Think about which is more important to you and what you would prefer to have if something happened.

    Savings can be useful but often you will be better protected by an insurance policy which will be able to pay out a higher amount of money. You can choose the level of cover that best suits your own situation, to cover all your most important expenses.


  • Does my job give me sick pay?
  • Some types of employment (e.g. civil servants) have better support for employees if they were unable to work due to sickness. Many of these types of jobs would pay an employee for up to 6 months or even 12 months if they couldn’t work.

    There will usually be some form of government support available (e.g. Statutory Sick Pay or Employment and Support Allowance). These payment will usually be much lower than your typical monthly wage though. It’s worth thinking about if you would be able to properly support yourself financially if relying on sick pay alone.

    Critical illness cover is usually an insurance policy that is taken as an added benefit to life insurance (life and critical illness cover). It pays out a cash lump sum (tax free) on diagnosis (usually) of a serious or critical illness to help you to recover without worrying about financial problems.

    critical illness cover banner

    Most critical illness cover policies will pay out for around 50 to 80 different medical conditions and some cover up to 180 conditions. Some of the most common conditions that are included and claimed for are:

    • Cancer
    • Heart attack
    • Stroke
    • Multiple sclerosis
    • HIV
    • Serious injury (e.g. loss of limbs, eyesight, or serious burns)

    Premiums are based on a number of elements such as your age (cover is cheaper for younger lives), how much cover you need, if you smoke, your health, and your lifestyle.

    Often people confuse critical illness cover with terminal illness insurance, but they definitely aren’t the same thing. Terminal illness will pay out if you receive a terminal diagnosis and generally have less than 12 months to live.

    Pros and Cons of critical illness cover

    Pros

    • Lump sum payment on diagnosis or treatment of a serious illness
    • Cash payout (tax free)
    • Up to 180 different conditions covered
    • Approximately 98% of claims paid
    • Children’s critical illness cover can be added usually
    • Partial payments for lower severity conditions leaving some cover still
    • You can take it out on its own or with life insurance

    Cons

    • Can be confusing and difficult to compare one insurer to another
    • Often more expensive and not as affordable
    • You must meet criteria of the medical definition to claim
    • Pre-existing conditions may be excluded
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    Income protection will pay out a monthly income to replace any lost earnings while you can’t work due to sickness or injury. Most people could not live off what support is provided by their employer or state benefits such as Statutory Sick Pay (SSP), therefore would need extra income.

    If you were signed-off work for a period of time (usually 4 weeks or more) by your GP then you would be able to make a claim. You could be signed-off because of an illness (e.g. Musculoskeletal, fractures, cancers, mental health issues, or COVID-19) and then your policy would pay out until you are well enough to return to work.

    There are several different types of income protection insurance, including:

    Premiums for this type of policy can be based on the type of policy you buy, your age, how much cover you need, and your health.

    Pros and Cons of income protection insurance

    Pros

    • Very simple and pays out if you can’t work for any reason
    • Lots of different options and flexibility
    • Can suit most budgets
    • You can claim more than once on the same policy (even for the same condition)
    • Benefits are classed as tax-free
    • Claims process is often very simple
    • Options available for self-employed and employed
    • Support can also be provided to help you to get back to work (e.g. counselling or rehabilitation)

    Cons

    • Can also be confusing as there are many options
    • Often will exclude pre-existing medical conditions
    • Will only insure up to 60% of your Gross monthly income
    • Self-employed options can be difficult to evidence income

    You might need to get proper advice when you are considering buying income protection or critical illness cover. It can be confusing because there are so many options and especially for people with pre-existing medical conditions, dangerous job, or hazardous activities.

    It is possible to get these policies online through some websites that offer instant quotes and applications. You should make sure that you have done your research first and you know exactly what you need beforehand. If you’re not sure about exactly what you want then it’s often better to speak to an expert.

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    Here we look at the most common claims for each type of policy and how they compare to each other.

    ConditionCritical illness coverIncome Protection
    CancerY (Most cancers)Y (up to 12 or 24 months)
    MusculoskeletalNY
    Mental illnessNY
    COVID-19NY
    Heart attackYY
    StrokeYY
    Multiple SclerosisYY

    Is it worth having critical illness cover?

    Critical illness cover can be a real lifeline and offer significant financial support if you are diagnosed with a serious illness or medical condition. Whether it is worth it will ultimately be up to you and if it is something you feel you need and can afford.

    What is the best critical illness cover?

    There are a lot of different critical illness cover providers in the UK and what is ‘best’ for one person might not feel like the right fit for someone else. Some of the main insurance providers that sell critical illness cover are:

    Income protection insurance is designed to replace your usual monthly income if you cannot work due to illness or injury. This money can offer much needed financial support until you have recovered enough to return to working as normal.

    How much is income protection per month?

    Income protection insurance policies will vary in price depending on the provider you choose and how much cover you want. Other factors that will affect how much you pay are:

    • Your age
    • Your occupation
    • Your health
    • Type of income protection policy
    • How much you want the policy to pay out each month

    Related articles

    Resources

    Safe Workers – Average sick days in the UK 2022 

    Statista – Sickness absence rate in the UK 1995-2021 

    Citizen’s Advice – Check if you can get sick pay 

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    Is it worth having income protection insurance?

    Income protection insurance can be extremely useful and very important for anyone who is unable to work due to sickness or an injury (e.g. from an accident, sports, work etc.). Essentially, income protection insurance pays out monthly to replace any lost earnings while you are unfit or unable to work.

    Payments for income protection insurance can be used to pay your mortgage, rent, other credit commitments, food bills, utilities and other regular outgoings.

    Common myths about income protection insurance:

    • Income Protection Insurance won’t pay out
    • Statutory Sick Pay (SSP) from the government will cover me
    • The cost of Income Protection Insurance is high
    • People with medical conditions can't have Income Protection Insurance
    • My employer will help support me
    What does income protection insurance cover?

    As a rule of thumb, income protection insurance will pay out a regular monthly tax-free payment to you if you can’t work and you are signed off by a doctor. You will need to provide supporting evidence from a medical professional such as your GP and proof of income from your employer or accountant.

    Example: Sarah was involved in a car accident which resulted in a serious back and neck injury that prevented her from being able to drive for 6 months. She was able to claim on her income protection policy after 4 week for the remaining 5 months until she was able to move and drive again. She would also usually be able to claim for rehabilitation and physiotherapy to help her to return to work as planned.

    Do I need income protection insurance for a mortgage?

    Income protection insurance and mortgage life insurance are not compulsory for getting a mortgage in the United Kingdom. Some mortgage lenders might ask for you to get insurance as a condition of the mortgage offer in some circumstances but this is rare.

    It is strongly recommended to have insurance to protect you and your family if you have a mortgage and other credit commitments. If you consider what the financial impact would be if you were unable to work due to accident, sickness or injury, and even if you were to die.

    Most common mortgage protection insurance policies:

    • Buildings insurance
    • Mortgage life insurance
    • Income protection insurance
    • Critical illness insurance
    • Mortgage payment protection insurance (Accident, Sickness & Redundancy
    Is income protection insurance tax free?

    Payments from an income protection insurance claim are almost always tax-free, apart from some business income protection policies. This is because you pay tax on the premiums for personal income protection insurance at source (i.e. the premiums are paid from your net monthly salary).

    The same applies to life insurance premiums and payouts, effectively you have already paid tax on the premiums that you have paid. There are some other possible tax implications that may apply in certain circumstances so you should seek proper advice or guidance if you have any specific questions.

    Which is the best income protection insurance UK?

    It’s very difficult to say overall which income protection insurance policies or providers are the best, simply because there are so many different options and types of cover. You can get income protection insurance from an even wider range of insurance providers than life insurance, so your choice is even greater.

    The most common income protection insurance policy is:

    • Short term income protection insurance (24 months)
    • 4-week deferred period (pays out after 1 month of absence)
    • Guaranteed premiums (fixed premiums)
    • Underwritten income protection insurance

    There are several other cover options for income protection insurance (e.g. long-term, age rated, reviewable premiums, guaranteed acceptance and 0 weeks to 12 months deferred periods).

    The top 5 income protection insurance providers according to research by Defaqto are:

    1. Aviva (Trustpilot score: 4.0 out of 5.0)
    2. British Friendly Society (Trustpilot score: 4.1 out of 5.0)
    3. LV= (Trustpilot score: 4.5 out of 5.0)
    4. Royal London (Trustpilot score: 4.0 out of 5.0)
    5. Shepherds Friendly (Trustpilot score: 4.3 out of 5.0)
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