By Steven Keogh

Differences between income protection cover and critical illness insurance make both products invaluable in today’s economic climate, so we have put together a key comparison to help you decide which option is best for you.
Insurance comparison

Regular Payments vs. Lump Sum

Though both income protection and critical illness will provide you with a pay out should you by unable to work due to illness, the type of payout will depend on the policy you choose.

Income protection is designed to actually protect your level of income and will pay out a regular lump sum for a fixed length of time so that you can maintain your standard of living.

Conversely, a critical illness payment is usually one tax free lump sum that is issued on diagnosis and no further payment will be made for this specific condition.

Illness vs. Unemployment

An income protection plan will not only pay out if you are unable to work due to illness, it will also be valid if you loose your job through accident or redundancy.

If you are able to work in another role or at a reduced rate, an income protection policy will continue to be valid and supplement your income to the level agreed.

When it comes to a critical illness, you do not have to be unable to work for a payment to be issued. Such cover will become valid on diagnosis of a recognised condition no matter what your employment status. It does not matter how much income you receive, the payout level will be the same.

Immediate Payment or Deferment

Most income protection policies will have a period of deferment before the regular tax free amounts start to be paid. This can be anything from one month to up to two years depending on the agreement made at the start of a policy.

Conversely, a critical illness payment will be made as soon as a diagnosis has been confirmed and will then not pay out again until another eventuality arises.

Value of the Cover

When you take out a critical illness policy you can set the amount of payout at any level you see fit. The higher the payout, the higher the premium but there is no cap on the amount you can set. This makes critical illness insurance ideal for covering a fixed level of debt such as mortgage, which you would want paid off should you be diagnosed with a serious illness.

When you take up an income protection plan the payment is intended to cover your standard monthly outgoings. Such a policy will usually set a level of approximately 60% of your gross monthly salary, which should equate to a standard net monthly income.

The differences between income protection cover and critical illness insurance remain constant but the details of each individual policy may change. Before you choose any new insurance product make sure you read the small print so that you can be sure you get exactly what you are looking for.

Need help?

If you would like any help or advice on which insurance is most suitable for you then please call one of our friendly advisers on Freephone 0800 799 9330