Critical illness insurance vs income protection: do you need both?

Critical illness insurance and income protection are often confused. 

Many people assume that they don’t need one if they have the other as, at first glance, these policies provide different benefits. However, there is reason and scope to have both to enhance your health protection.

So, what’s the difference and is it worth having both?

What is critical illness insurance? 

Critical illness cover pays out a tax-free lump sum if you’re diagnosed with an insured medical condition during your policy term.

Critical illness insurance is designed to provide you with a specified sum of money to help you with costs while you recover from your illness.

The covered illnesses are usually long-term and serious conditions such as a heart attack or stroke or diseases like cancer, multiple sclerosis or Parkinson’s disease.

What is income protection? 

Income protection, otherwise known as permanent health insurance, is an insurance policy that pays out a monthly benefit if you’re unable to work because of injury or illness.

Income protection usually pays out until retirement, death or your return to work. However, short-term income protection policies, which last for one or two years, are often available at a lower cost.

Neither income protection nor short-term income protection pays out if you’re made redundant, but they may provide ‘back to work’ help if you’re off sick.

What’s the difference?

Firstly, your critical illness insurance provider will pay out if you are diagnosed with a listed illness of the provider. 

Secondly, critical illness insurance is usually paid in one lump sum, which can be used for various reasons, from funding private treatment to paying off your mortgage. On the other hand, income protection is paid monthly to imitate your monthly wage and will be paid until retirement, death, you return to work, or the term ends.

Thirdly, how you claim on your policy varies. To make a claim on your critical illness insurance, you must be diagnosed with a medical condition outlined in your policy. Whereas, to claim on your income protection policy, you must meet the requirements to be deemed unfit for work. This may vary from policy to policy, so ensure you know what’s covered before taking out cover.

Should you consider both? 

It’s important to note that while critical illness insurance and income protection can help with the financial burden in certain circumstances, the terms and conditions of each policy have clear differences.

If you were diagnosed with a critical illness, a lump sum of money to pay off debts or fund private treatment could be priceless. Similarly, you could benefit from monthly pay-outs from your income protection provider to help cover your day-to-day costs. If you were to fall seriously ill, you may not be able to work again and would need to pay off your mortgage/make home modifications while having a monthly income to service living costs and bills. So, taking out policies for both covers can give you peace of mind knowing that you have different options should you fall ill.

Our team of advisers are at hand to help source the right protection for you. To discuss your options in more detail, please call us on 02921 660 550 or leave a message.