Critical illness or income protection?

Critical illness or income protection?

29 Apr 2022

In a perfect world, we would never have to worry about how we are going to pay our bills, our mortgage, maintain our lifestyles or even treat ourselves. However, the reality is that no one is invincible and we should all have a Plan B just in case.

Understandably, no one wants to think about what would happen if they become seriously ill or injured. But taking the time to consider your options will put you in a good position to protect yourself and your family financially. Part of this process may involve comparing critical illness cover and income protection.

Whilst they are both designed to provide a safety net should you become seriously ill or injured, they are quite different products. So, do you need critical illness or income protection?

What is the difference between critical illness cover and income protection?

If you're diagnosed with or have surgery for an insured illness, recovery should be your top priority. Recovery takes time and is something you have to work on every day. Critical illness cover can take away some of your financial worries and will pay a single lump sum - even if you're still putting in the work at your 9-5. This money can be used to pay off your mortgage, cover medical treatment, or adapt your home.

Income protection, on the other hand, is designed to replace a portion of your income if you are too sick to work, rather than paying out a single lump sum if you are diagnosed with a potentially life-threatening illness. In that sense, income protection bridges the gap between recovery and returning to work while critical illness is designed to support recovery.

It's worth noting that, of the two, income protection covers a broader range of illnesses and injuries. For example, if you're suffering from stress or back problems and are subsequently unable to work and signed off by your GP, your income protection claim may be approved (depending on your insurer). Critical illness cover is less likely to pay out for such illnesses or injuries, as they may not be specified as a condition which you can claim on. As a general rule, it's always best to check your policy details to see what's covered as this can vary from policy to policy.

Should I get critical illness coverage?

The short answer is it depends on your circumstances. If you don't have enough money saved to fall back on if you unexpectedly fall ill, then critical illness cover may be a good option for you. It may also be worth getting critical illness cover if your employer does not cover periods of time off due to sickness as part of your employment benefits package.

The cost of cover will largely depend on your age, health, lifestyle and job. As we get up there in years, critical illness cover may be slightly more expensive. However, the all-important peace of mind that critical illness cover provides is priceless.

What's more, there is no deferral period and you can sometimes claim critical illness cover on diagnosis. Though bear in mind that the claimed condition needs to be a listed condition that meets the severity definition as described in the policy documents before you can claim. If your claim is valid, you may need to survive for at least 10 days before you receive a pay out. Once you receive your pay out, your policy will end. With that in mind, it's important to carefully check the policy details before taking out cover.

Is income protection worth it?

When we think about taking time off work due to an accident or serious injury, many of us only imagine taking a couple of days off. However, according to the Office for National Statistics (ONS), 118.6 million working days were lost because of sickness or injury in the UK in 2020. So, getting income protection insurance is definitely something worth considering, particularly if you have large responsibilities to take care of such as paying a mortgage.

On top of that, regular payments will make it easier to manage your money every month, as opposed to receiving one large lump sum that you'll likely have to budget. Plus, there are also more budget-friendly policies with limited claim periods available (usually 1-2 years), as well as more expensive policies that can cover you until retirement.

Despite the flexibility that income protection provides, it's worth noting that your policy will come with a deferral period. This means you will usually have to wait between 30 - 90 days before your payout kicks in, although you might be able to specify this to be shorter or longer if you wish. You may have to rely on your savings in the meantime. Additionally, pre-existing medical conditions are not always covered, and as with critical illness cover, your condition will need to reach a specified level of severity before you can claim income protection. Make sure you check your policy details to find out which illnesses and injuries are insured, as well as the severity.

Critical illness or income protection - which one is better?

If you've found yourself thinking that both critical illness cover and income protection sound like ideal options, we don't blame you. Even though there are differences between the two, both offer great coverage and much-needed peace of mind. Although you cannot combine the two policies, you can take out both, if your budget permits.

Should the unthinkable happen and you are unable to work and signed off by your GP, income protection could cover your usual living expenses and you could then use your critical illness cover to pay off your mortgage. Sounds like a dream, right?

Though for most people, getting both income protection and critical illness cover is not doable. It's usually either one or the other. So, it may be time to make a tough decision and weigh your options.

You don't need to stretch your finances to protect your family! If you're struggling to decide whether to take out critical illness or income protection, get in touch with our team of expert protection advisers. We can help you find the right policy for your specific needs that also suits your wallet.

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