Critical illness vs income protection – which one to choose?

With so many different protection products in the market, it can be daunting to decide which protection plan will be the best in order to protect your mortgage and yourself. In short, if you have a mortgage you should at least have life insurance to protect you against death, but what happens if you fall ill and cannot work for a period of time?

Income protection and critical illness are both designed to help protect you financially. However, they are two different products. In this article we’ll explore how income protection and critical illness compare, so you can make an informed decision before you decide which policy to take out – or whether both may be suitable for your circumstances.

What is income protection?

If you’re unable to work due to incapacity caused by illness or injury which results in loss of income, Income Protection Benefit is designed to pay you a regular monthly amount, which will start after a chosen deferred period and continue until you’re able to return to work, your plan ends, retirement, or death, whichever happens first, meaning that you can continue paying your mortgage and with your standard of living.

What is critical illness cover?

Critical Illness could pay out a lump sum if you’re diagnosed with, or undergo a medical procedure for one of the specified critical illnesses in your policy and you survive for a stated amount of days from diagnosis. 

You can have a standalone critical illness policy or a combined life and critical illness policy. 

What's the difference between income protection and critical illness?

The difference lies in the fact that critical illness is designed to pay out a one-off lump sum if you're diagnosed with a critical illness that the provider covers during the length of your policy. In contrast, Income Protection Benefit is designed to pay out a monthly amount if you're off work due to an illness or injury which results in loss of earnings.

What does income protection not cover?

As with all insurance policies, limitations and exclusions apply. For example, this plan does not include unemployment cover and will therefore not pay out if you become unemployed. While any monthly benefits should be free from UK Income Tax or National Insurance Contributions, the Government may change this tax position at any time, which could affect the monthly benefit your policy pays out. It is also worth noting that the benefit may affect your claim to some means-tested state benefits.

What does critical illness cover?

Each critical illness policy covers some different conditions, as well as the severity of them. Generally, the more conditions that are covered, the more expensive the cover is likely to be. However the Association of British Insurers (ABI) enforces that certain illnesses are covered as a minimum by insurers. Some policies will combine both critical illness and life cover and may enable pre-payment on diagnosis of some critical illnesses. Dependant upon the policy, once it pays out for a critical illness condition it will normally end and therefore there is no further life cover available.

What does critical illness not cover?

There are many conditions covered by a critical illness policy, however it is important to remember that not every occurrence of an illness will be covered. For example, not all types of cancer are covered. Advances in medicine and technology mean that traditional views of critical illnesses are constantly changing.

You also need to have permanent symptoms to make a claim for some illnesses.

Should I choose income protection benefit or critical illness cover?

Your decision may depend on work and lifestyle factors. If you work in a trade where any injury defined as non-critical could nonetheless cause damage to your livelihood, income protection may be better suited to your needs. On the other hand, critical illness cover may suffice if you prefer a one-off lump sum on diagnosis of covered conditions which could be used towards paying off a mortgage or to help with other everyday living expenses.

You may feel you even have a need for both products, if affordable. 

Get the cover you need today

It can be difficult to decide how to protect yourself and those closest to you, but whether you choose income protection or critical illness cover or both, you’ll have peace of mind knowing that you have some financial protection in place.

This article does not constitute advice and advice is recommended before making any financial decisions relating to mortgage protection.

Source
https://www.legalandgeneral.com/insurance/life-insurance/definitions/critical-illness-cover-v-income-protection/ 
https://www.dentonsmortgages.co.uk/Insights/Extra-protection-for-when-you-need-it/ 

Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of financial advice. We recommend that you take financial advice before making any financial decisions.