Unlike life insurance, which pays out on death, Income Protection and Critical Illness Cover both offer a financial safety-net while you’re still alive.
They’re designed to reduce the financial hardship you and your family could suffer if you became ill.
It’s easy to lump Income Protection and Critical Illness Cover together, but they actually work in distinct ways and are designed for different purposes. Some people choose to have both products as part of a comprehensive protection package.
To help you get started, here are some of the questions to ask yourself.
What type of payout do I want?
Critical Illness Cover pays out a lump sum, which you could use to pay off some of your mortgage, cover medical expenses, or pay for adaptations to your home. Usually, the policy ends after you receive a payout.
Income Protection pays out a percentage of your income for each month that you’re unable to work. This typically ranges from 50% to 70% of your gross monthly earnings. You could use the payouts to cover your regular outgoings, including your mortgage repayments and essential bills. Once you make a claim, you can continue your policy and potentially claim for a different illness or injury in the future.
Some Income Protection policies keep paying out until you return to work or retire, whereas others pay out for a limited period of 12 or 24 months.
Which illnesses do I want to protect against?
As its name suggests, Critical Illness Cover protects against extremely serious illnesses, such as heart attack, stroke, certain types of cancer, multiple sclerosis, and Parkinson’s disease. For your claim to be accepted, you’ll need to meet the insurer’s exact illness definition. Not all cancers are automatically covered.
The illnesses and injuries covered by Income Protection are generally broader in scope. Usually, if your condition prevents you from working, you’ll be covered. So, whereas a bad back or depression wouldn’t be covered by Critical Illness Cover, these conditions might be covered by Income Protection.
Bear in mind that each Income Protection policy will have its own definition of incapacity. An ‘own occupation’ policy pays out if you can’t do the job you hold at the point of claim. If you have a ‘suited occupation’ policy, the insurer might require you to return to work in another occupation that you’re deemed suitable for.
When do I want the policy to pay out?
Critical Illness Cover pays out on the diagnosis of a specified serious illness. If your claim is accepted, you’ll typically receive a payout in four to six weeks.
With Income Protection cover, you can decide at the outset when you want it to start paying out. Some policies pay out from day one of illness, but usually there will be a deferred period of between four weeks and 12 months. The longer the deferred period, the lower your premiums.
Do I want the best of both worlds?
It’s important not to underestimate the impact that illness could have on your finances. Income Protection and Critical Illness Cover both fulfil vital roles, so you may wish to have both forms of cover in place.
Critical Illness Cover could enable you to pay for medical treatment, while Income Protection could cover your bills, day-to-day household needs and your child’s education. If you survived a serious illness but were no longer able to work, having both types of protection could make a real difference to your financial wellbeing.
Get in touch
If you’d like to speak to an expert about your protection needs, please get in touch. We can design a bespoke protection package that meets your unique requirements. Email [email protected] or call 0131 339 2281.