Critical Illness Vs Income Protection

Which is the right cover option for you?

In the UK alone, over 1 in 3 people will develop a critical illness, for instance a form of cancer, in their lifetime. Regular income is necessary, as mortgage’s and other payments mean your family or home is at risk if you have to be off work due to a critical illness and recovery period. Critical Illness Cover and Income Protection may differ, but both can support you through a financially tricky time.

Below, we have outlined the main differences between Critical Illness Cover and Income Protection.

 Critical IllnessIncome Protection
What’s covered?Only critical illnesses specified in the policy. Each policy is different so refer to the detail to see if certain illnesses will be covered. Some of these illnesses might have to be judged severe enough for you qualify for a pay-out.Most illnesses or disability severe enough to prevent you from working, including stress or back problems.
How are pay-outs made?You’ll usually get a single lump sum payment directly to you.After a qualifying period, you’ll get regular payments.
Can you claim more than once?No. The policy only pays out for one claim, which is for the total amount of cover, e.g. £50,000. This is usually paid as a lump sum but can also be taken as regular income if it is set up under what’s called a ‘family income benefit’ policy.Yes – you can claim as many times as necessary during the length of the cover period.
Are pay-outs tax-free?Yes.Yes – unless it’s an employer scheme – in which case your payments will be taxed as normal.
How is a pay-out calculated?You are insured for a certain amount, e.g. £50,000, which can be paid out at any time during the term of the policy if you make a successful claim.Payments are a percentage of your gross annual earnings – usually a maximum of 50% to 70%
What’s not covered?• alcohol and drug-related illness • pregnancy-related illness • pre-existing medical conditions• alcohol and drug-related illness • pregnancy-related illness • pre-existing medical conditions
Pros?• It’s especially useful if you’re self-employed or have your own business and do not benefit from an employer’s sick pay scheme. • Given that it could potentially pay out for many years, it is very cost effective.• You can choose the amount of cover you want – it’s not linked to your income. • The lump sum you get if you claim can be big enough to pay off your mortgage, loans, etc.
Cons?• Premiums can be relatively expensive for the highest levels of cover, but if you increase the amount of time before you get paid out and you don’t restrict your policy to your current occupation, then the price falls.• Premiums are based on your occupation. If you change jobs you’ll need to review the policy.• It can be expensive. If you opt for cheaper cover you may find many illnesses and permanent disability are not covered. • Complex definitions of cover have led to complaints that the products are not easy to understand and exclusions are not fully explained. For example, only some types of cancer at certain stages are covered.

Both these types of cover are designed to help support you and your family in case you face a period of time where you cannot work.

If you are unsure which policy would be best for you, click here to fill out a simple form and one of our advisors can get back to you and discuss your options and advise the best sort of cover.

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