Critical Illness and Income Protection Insurance

Do I Need Critical Illness Or Income Protection Insurance? Your Guide

If you’ve ever been the breadwinner for your family or had a job that requires you to be physically fit, you’ll be familiar with the worry, “how will I pay the bills if I get sick or injured?” While it’s not a pleasant thought, it is a worry rooted in reality.

The good news is, you don’t have to live with this worry. Critical illness insurance and income protection insurance both give you financial relief if you become ill or injured and cannot work, but they differ in when and how your pay-out will be given.

As with any type of insurance, this is one you hope to never have to use, but the peace of mind it can offer you is immense. Both critical illness insurance and income protection insurance will give you financial security should something bad happen, but what’s the difference, and which one do you need? Read on to find out.

What is critical illness insurance?

Critical illness insurance provides you with a lump sum if you are medically diagnosed with an illness or condition listed in the policy.

What illnesses are covered by critical illness insurance?

Illnesses or conditions typically listed include:

  • Cancers
  • Strokes
  • Heart attacks
  • Loss of limb
  • Organ failure
  • Loss of sight
  • Loss of hearing
  • Alzheimer’s
  • Parkinson’s
  • Multiple Sclerosis

What can a critical illness insurance pay-out be used for?

The pay-out can be used for whatever you need, whether that be to cover living costs, make adjustments to make your home more accessible, or to cover private or specialised medical care.

What is income protection insurance?

Income protection insurance will cover you with a monthly payment if you are required to take time off work for any medical reason, both physical and mental, to make up for loss of income.

Typically, you will be insured against 50-60% of your monthly income before tax, and how long you will be covered for depends on the policy you decide on. Short-term income protection insurance will be cheaper, but it will end at the end of the policy’s term, even if your medical issue is still keeping you from work. Full-time income protection insurance will have higher premiums, but you will continue to receive a monthly payment until you can return to work.

How quickly do you get a pay-out with income protection insurance?

It is important to be aware that there is a waiting period after you claim your income protection insurance. You may only have to wait a week to receive your first payment, but some policies will have a waiting period of 4, 8, 13, 26, or even as long as 52 weeks before payment will be received. Think about how long you would comfortably be able to afford to live on your savings as your premium will be more affordable if you can opt for a longer waiting period.

What’s the difference between critical illness and income protection insurance?

Both critical illness insurance and income protection insurance will provide you with financial aid should you become ill and be unable to work, however, there are some key differences.

Income protection will cover you for any medical reason as long as it has been diagnosed by a medical professional, whereas critical illness will only cover you for conditions listed in your policy.

Income protection insurance provides you with a monthly payment for a specified period, whereas critical illness insurance will provide you with a lump sum and your policy will then end.

Critical illness insurance will pay out as soon as you make a claim, whereas you will have to deal with a waiting period after claiming for your income protection insurance.

What are the pros and cons of critical illness insurance?

As with any type of insurance, there are pros and cons to taking out a critical illness insurance policy. They are:

Pros of Critical Illness Insurance

  • You receive a lump sum as soon as you claim with a medical diagnosis
  • You can use the lump sum for whatever you need, whether it be to replace a loss of income, cover costs of private treatment, and/or cover debt
  • You can find policies that will cover dependents should they become ill
  • You may be able to find a policy that will give partial payments for those ‘additional’ illnesses without your policy ending

Cons of Critical Illness Insurance

  • Policies can be expensive depending on the list of illnesses and conditions covered
  • Critical illness insurance can vary greatly between insurers so time needs to be taken to decide on the right policy for you
  • It will only pay out if you are diagnosed with a specific illness or condition listed on your policy, meaning if you are diagnosed with another serious condition, you won’t receive any money

What are the pros and cons of income protection insurance?

Income protection insurance also comes with both pros and cons, they are:

Pros of Income Protection Insurance

  • You will be covered for any medical reason that results in loss of income
  • You will receive a payment every month, for as long as is stated in your policy
  • It can allow you to focus on recovery without worrying about making ends meet
  • If you can afford a higher premium, some income protection insurance policies will keep being paid out until retirement
  • You may be able to tailor your policy to your individual preferences

Cons of Income Protection Insurance

  • If you opt for a short-term policy, your payments will end when the term is up, even if you are still suffering from the illness or injury
  • Premiums can be expensive for long-term policies
  • There is usually a cap on the percentage of your income that can be covered

Do I need both critical illness and income protection insurance?

You can have both if desired, but you don’t necessarily need both. If you have a strong family history of a serious condition that concerns you, you may find peace of mind by having both. That said, most people will find one or the other sufficient.

If you have a good sick pay benefit through your employer, you may decide that critical illness cover is the right choice for you since you won’t need to worry about covering your bills if something happens.

However, if you do a physical job or work for yourself, you may find that income protection insurance will give you more peace of mind since it will cover you for minor conditions and injuries that may take you out of work for a shorter period of time than a critical illness.

It’s important to remember that protecting your health through daily healthy habits is one of the best forms of ‘insurance’ against critical illnesses you can have.

Can you claim both at the same time?

Yes, you can claim both critical illness and income protection insurance at the same time, providing that you meet the valid criteria for both, i.e. you experience loss of income as a result of being signed off work for a medical reason, and your condition or illness is listed in your critical illness insurance policy.

Should I get critical illness insurance as a part of my life insurance?

Critical illness insurance can be added onto a life insurance policy as ‘combined’ cover, or it can be taken out as ‘standalone’ cover. Just be aware that if you claim for critical illness as part of a ‘combined’ insurance policy, your policy will end and you will no longer be covered in case of death, so it’s generally best to have two separate policies. 

Whether you choose critical illness insurance, income protection insurance, or both, you can rest easy in the knowledge that you and your family will be protected from financial hardship should you be required to take time off work.