Critical Illness Or Income Protection Insurance

6 min

The global pandemic may have been a wake up call for many of us. It has shown us there are no guarantees of health and things can change in an instant. But COVID-19 is far from the only risk to our health and subsequently our finances: ‘Each year one million workers suddenly find themselves unable to work due to serious illness or injury’. [1]

Yet according to the Department for Work and Pensions Family Resources Survey, around 54% of households have either no savings or less than £1,500 savings and 76% have less than £10,000 [2]. According to sick pay statistics in a government Health In The Workplace report: only 42% of small organisation employers offer any Occupational Sick Pay, which means the remainder would be left with Statutory Sick Pay (SSP) alone. This means employers would pay you £95.85 a week after the initial four days of illness, up to 28 weeks. After the 28 week period – when SSP ends – if you are still unable to work – assuming you have paid National Insurance for two years or more – you are eligible to claim contributory Employment and Support Allowance (ESA) which is even less than SSP.

Would you be able to survive on less than £400 a month alone? Possibly not. But how do you decipher between all the options and find the best way to protect yourself and your family against the risk of illness or injury affecting your income and lifestyle?

The two most common protection products against illness and injury are Critical Illness Cover and Income Protection. We’re here to help you understand them better and make informed decisions to suit your circumstances.

What is Critical Illness Cover?

Critical illness insurance is a long-term insurance policy, which covers against serious illness such as cancers, heart attacks or strokes. If you are critically ill – as per the list of illnesses in your policy terms – your policy pays out a tax-free lump sum, similar to how a life insurance policy would pay out on the occasion of your death, only this is in the event of a critical illness instead. The payment could be used to pay off the mortgage, cover healthcare costs or replace wages to maintain your family’s standard of living. Most Critical Illness policies pays out once and the cover ceases at that point.

What is Income Protection Cover?

Income protection insurance is also a long-term policy which covers lost income if you are unable to work due to illness or injury. It offers an ongoing regular income to replace a portion of your earnings and allows you to continue to pay bills and your living expenses while you return to health. If you do not recover enough to work, the best policies would continue to pay until your retirement. Unlike critical illness it is possible to claim multiple times on the same policy if you are unable to work at different times throughout the duration of the policy.


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Which is more important, Critical Illness Cover or Income Protection?

Critical Illness cover is perhaps the best-known type of insurance between the two and tends to be the most taken up. Generally more people are aware of this type of insurance because it often comes as an add-on to a life insurance policy and is sold alongside mortgages to protect that debt.

However, according to Which? Magazine; ‘the one protection policy every working adult in the UK should consider is the very one most of us don’t have – income protection’. [3] Income Protection doesn’t need to specify how serious your illness is – if it is serious enough that you can’t work, then it’s serious enough to claim. This means then that it’s not restricted to the specified list of illnesses and their seriousness, in the same way critical illness protection is.

The two products are not mutually exclusive though and do work well together. If you like – critical illness cover is to pay off any debts, your mortgage and big things like that if you are seriously ill; whereas income protection is there to maintain your day-to-day living costs and monthly mortgage payments if you can’t work for a period of time.

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What will Income Protection or Critical Illness Cost me?

Factors affecting cost of premium include:

  • your age
  • the type of work you do (some professions are higher risk)
  • your health
  • if you smoke

Protection insurance is not like car or home insurance; searching purely for the cheapest policy is not recommended. Everyone’s individual requirements are different and we would always suggest speaking with one of our expert advisers to make sure you get the perfect policy to cover what’s most precious to you. Premiums and cover vary a lot, but basic policies start from a few pounds a month and most people are surprised by how reasonable they are.

When compared to regular non-essential monthly outgoings, income protection could be a comparatively insignificant cost, but hugely significant value.

According to ABI ‘Welfare Reform for the 21st Century’ paper; ‘The UK welfare system is based on a fundamentally flawed assumption that households that will get little or no support from the state recognise this, and act to put in place their own safety net’. The statistics are quite surprising; of the 26.7 million households in the UK in 2014 20.4 million had contents insurance, yet only 0.3 million had Income Protection. [4] Do you know what you are entitled to, or how you would cope should you be unable to work?

For free, expert advice, our advisers are on the phones locally to help you understand your own options better. Or read more about Income Protection or Critical Illness.



[2] Office for National Statistics



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