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Critical Illness Cover vs Income Protection

There are two main insurance policies designed to protect you financially against sickness, accident or injury

A photo of Grace Lynch, the author

By Grace Lynch

Published on: 3 May 2023

4 min read

Critical Illness Cover vs Income Protection

Statistically we are all likely to have a minor or major injury in our lives, or to become too ill to work for a period of time. It is wise to have some cover in place to make sure that you’re protected in these events to prevent financial hardship.

There are insurance policies specifically designed to protect against sickness, accident or injury, that will protect you and your family financially. The two most common policies for these scenarios are critical illness insurance and income protection insurance.

It can be confusing and difficult to know which policies are best for protecting you and your family against illness or injury. These policies generally aren’t cheap either and so it’s important to make sure that you spend your money wisely.

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

Critical illness cover pays out one cash lump sum and you can claim if you are diagnosed with a serious illness covered by your policy. This lump sum is tax-free so you get to keep the whole amount to help support yourself and your family financially.

Common reasons to claim on critical illness insurance include cancer, heart attack, stroke and multiple sclerosis.

Income protection is good for longer term periods of sickness that leave you unable to work. If you are signed off work for 4 or more weeks, you can claim a monthly (tax free) income from your policy.

This can help you cover any money lost while you can’t work and can help cover important bills e.g. mortgage payments. There are a few different types of income protection to choose from:

Which is better critical illness cover or income protection?

There isn’t one ‘better’ policy type when comparing critical illness cover and income protection. Both policies function as a safety net to protect your financially. They simply work slightly differently and so one might work better for you than the other depending on the situation.

When choosing income protection insurance or critical illness cover, it can help to think about:

  • Do you have savings that could cover long term sickness?
  • Do you get sick pay from your employer? How long does this cover you for?
  • Are you employed or self employed?

Pros and Cons of Critical Illness Cover

Pro (critical illness cover)Con (critical illness cover)
Pays you a cash lump sum if diagnosed with a serious medical condition (tax free)Does not cover all possible medical conditions and different insurers will cover varying numbers of conditions. There are 36 key conditions covered by most policies.
Pay out rates are generally good for critical illness claims (around 98% of claims are approved)Can be harder and more confusing to compare policies
Can be added onto life insurance or bought separately (some insurers will only sell it as a combined policy e.g. Zurich)You can’t claim if your condition doesn’t meet the exact terms set out in your policy
You can add on extra benefits such as children’s coverThe insurer may prevent you claiming for anything related to a pre-existing medical condition (known as an exclusion)
Pro (income protection)Con (income protection)
Pays out for accidents or illnesses if you need time off work for 4 or more weeks (signed off by a doctor or GP)There are a lot of options available which can make it tricky to know which policy is best for you
Can claim multiple times on the same policy if needed (even for the same illness/injury!)Will usually only insurance around 60% of your usual income at most (70% is the highest possible amount)
Can cover both employed and self-employed workersCan be harder to prove your average income if you are self employed
Many insurers will offer extra support such as counselling or physiotherapy services to help you get back to work fasterThe insurer may prevent you claiming for anything related to a pre-existing medical condition (known as an exclusion)

If you want to you can buy both income protection and critical illness cover for an extra level of protection at a difficult time. A lot of insurers will allow you to buy multiple policies with them e.g. life insurance and critical illness cover.

Some providers will even reward you for having multiple policies with them. Vitality for example have started offering a multi product discount for customers who buy more than one type of cover.

If you already have life insurance you are happy with, it could be a good idea to check out what options are available from your current provider. Here we have some examples of insurance providers and the policies they sell:

ProviderLife insuranceCritical Illness CoverIncome Protection
VitalityYESYESYES
Legal & GeneralYESYESYES
AvivaYESYESYES
LVYESYESYES
Royal LondonYESYESYES
ZurichYESYESYES
AIGYESYESYES
Guardian 1821YESYESYES
Scottish WidowsYESYESNO
The ExeterYESNOYES
HSBC LifeYESYESYES

This comes down to personal choice as you don’t necessarily need both policies – though it could be helpful to have double the cover if something happened to you.

It is important to work out whether you will be able to pay for both policies long term though. It is better to have one policy that is affordable than struggle trying to pay for two.

The key thing is to think through your choice of policy carefully and not rush into anything. It can also be useful to speak to a qualified insurance advisor for advice if you’re not sure which policy is right for you.

Resources

Safe Workers – Average sick days in the UK 2022 

Statista – Sickness absence rate in the UK 1995-2021 

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