Income Protection vs CIC
18 Jan 2021
When considering life insurance and protection products, the choice can feel overwhelming. It feels like a big decision, and with so many options finding out what is available to you can be confusing. Not only are there loads of options available, but some of them are easily confused.
Income protection insurance and Critical Illness Cover are easy to mix up as they’re both designed to help you out when you’ve been sick or injured. However, they’re not as similar as they seem. Let us break it down for you.
What is income protection insurance?
Income protection does what it says on the tin. It protects your income by replacing a percentage of it (usually 50-70%) if you are signed off work with a specified illness or injury. This is paid out monthly in place of your salary instead of in a lump sum, and continues until either:
- You can go back to work
- You reach state pension age and retire
- Your protection period ends and you stop paying premiums
- You die during the period of the claim
The cost of a policy boils down to your age, job, whether you smoke or have previously smoked, the percentage of income you’d like to cover and your current health and lifestyle.
When taking out a policy, you’ll also agree to the range of illnesses and injuries covered, along with a ‘deferral’ period. This is the period of time between making a claim and when the benefit begins to be paid. The longer the deferral period, the cheaper the premiums.
So...what is critical illness cover?
Critical Illness Cover (CIC) is fundamentally different to Income Protection Insurance, although they often get confused because they’re both designed to cover you when you’re ill. However, where Income Protection pays out monthly and is designed to cover your salary, even those who aren’t employed (like stay-at-home parents) can get Critical Illness Cover, which is paid out in one big tax-free lump sum.
Critical Illness Cover is also pretty simple. It gives you a financial safety net to help cover regular outgoings as well as healthcare and any specialist medical equipment you might need after falling ill that could take a chunk out of your savings.
Here’s how it works. When you buy your policy, you decide how long you need cover for. Many people choose to buy a policy that will cover them until their mortgage is paid or their children leave home.
In terms of what you’ll be covered for, you’ll find the majority of policies cover serious long-term (but not terminal) conditions such as strokes, heart attacks, M.S, Parkinson’s, some types of cancer, and loss of limbs. CIC won’t pay out a lump sum if you die of the illness or injury though. You can only make the claim when you fall ill, rather than your family claiming after you pass away.
There are some policies that allow you to cover children on your policy, so if your children fall sick you can claim and cover their medical costs too.
Which type of cover is right for me?
If you’re not employed, or you think you may need a bigger payout than a percentage of your salary each month, Critical Illness Cover may be right for you. However, if you need a regular payment each month to keep you ticking over, it’s worth considering Income Protection instead. Either way, it’s important to shop around and read the fine print so you know exactly what you’re covered for.
You can buy either alongside a Life Insurance policy for protection against loss of life as well as illness, so you can be covered for everything.
If you’re still stuck, consider going through a broker, like us here at LifeSearch. We can talk to you about your situation, and help you figure out what kind of policy would best suit your circumstances and cover you how you want to be covered. Contact us today to start protecting the life you love.