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.
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.
What’s best for me, critical illness cover or income protection?
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.
What is critical illness cover?
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.
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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What is income protection?
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:
- Short-term income protection
- Long-term income protection
- Sick pay
- Personal Accident Insurance
- Mortgage Payment Protection
- Accident, Sickness and Unemployment (ASU)
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
How to buy critical illness cover vs income protection insurance
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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What is covered by critical illness cover vs income protection?
Here we look at the most common claims for each type of policy and how they compare to each other.
| Condition | Critical illness cover | Income Protection |
| Cancer | Y (Most cancers) | Y (up to 12 or 24 months) |
| Musculoskeletal | N | Y |
| Mental illness | N | Y |
| COVID-19 | N | Y |
| Heart attack | Y | Y |
| Stroke | Y | Y |
| Multiple Sclerosis | Y | Y |
There are lots of other medical conditions and injuries that are covered by each of these policies and all insurance companies offer different levels of cover.
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.
It can be upsetting and life changing to be diagnosed with a serious medical condition like cancer or MS. Critical illness cover pays out a cash lump sum which you can use in any way you like to help support you and your loved ones. You can use it for private medical care, covering important bills or even taking a holiday to relax and make memories with the people you love.
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:
Is it worth getting income protection insurance?
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.
Whether it is worth it to buy income protection is up to you and if it is a policy that you want and can afford to pay for each month. We’d suggest thinking carefully about how you would support yourself financially if you couldn’t work and if support like a workplace sick pay scheme or Statutory Sick Pay would be enough to cover all your essential monthly outgoings e.g. mortgage or rent payments.
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
It’s worth shopping around and checking quotes with multiple providers to make sure you get the right level of cover without paying more than you need to. It can be helpful to talk to an income protection insurance expert if you’re struggling to find a suitable, fairly priced policy.
Related articles
- Do you need critical illness cover?
- Is critical illness insurance worth it?
- Is income protection taxable?
- Average cost of critical illness cover UK
Resources
Safe Workers – Average sick days in the UK 2022