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Many people ask me what is the difference between Critical Illness Cover and Income Protection Insurance? Are they not the same? Which should I have?

Quite frankly the products are very different and really serve different purposes. That being said they both provide financial protection in the event of an illness. Lets take away the jargon?

In the simplest of terms -

Critical Illness Cover - pays out a lump sum should you be diagnosed with a Critical Illness of a specified severity that is listed within your insurance policies list of insurable illnesses.

Income Protection Insurance - a monthly payment to replace a percentage of your income should you be unable to work due to illness or injury.

These definitions are completely stripped down of any jargon and are meant to give you a very basic idea of what Critical Illness Cover and Income Protection Insurance are. The remainder of this article discusses these two forms of insurance more thoroughly.

What is Critical Illness Cover?

Critical Illness Cover provides a tax free lump sum payout in the event of suffering a specified serious illness such as serious cancer, heart attacks, strokes, blindness and deafness. Each illness has a condition or definition which much be met before a claim can be paid. Examples include but are not limited to:

  • Cancer - must be invasive and be characterised by the uncontrolled growth of abnormal cells.
  • Heart attacks - there must be evidence of the heart attack and troponin levels must be at a certain level.
  • Strokes - it must not be a TIA and must result in permanent symptoms.

Whilst this may seem perfectly understandable to some, many people find it difficult to understand how they are not eligible to make a Critical Illness claim as their condition is not deemed 'severe' enough by their insurance provider. Whilst this may seem finicky on the insurance providers part, in their defence they do award full claims to individuals who experience illnesses at such a severe level that they are left with life changing symptoms.

Nobody is negating the impact of suffering a mild heart attack or minor stroke, but in reality it is possible to experience these illness and have no lasting side effects from them. In these circumstances it is worthwhile remembering that whilst you are not eligible for a Critical Illness payout, at least you are not as ill as you could have been!

Many insurance providers have now improved their Critical Illness contracts so that mild or minor versions of the main serious illnesses covered, are eligible for a partial payout of the lump sum you are insured for. It is highly recommended that you speak with an insurance adviser who can explain the range of illnesses that are available for partial and full payouts so that you fully understand what you are covered for.

It is very important to understand that not everything is covered by Critical Illness policies. Illnesses covered by this type of policy are those that will usually have no bearing on your ability to work. You could claim on a Critical Illness plan and never have a day off work.

What is Income Protection Insurance?

Income Protection Insurance provides a monthly income (free of tax and National Insurance) if you are unable to carry out your work due to ill health. Plans are based on a definition which is set at the start of your cover. This can be one of the following:

  • Own occupation: the policy pays out if you cannot do you job
  • Suited occupation: the policy pays out if you cannot do your job or one for which you are suitably trained.
  • Any occupation: the policy pays out if you cannot do any job. In other words you could be asked to completely change your trade/profession
  • Working/Living Tasks: the policy pays out if you cannot do a series or tasks such as walking, dressing yourself, lifting, etc.

The best and only definition you should really look for is own occupation. The other definitions are worthwhile if you need Income Protection but are not eligible for own occupation cover, but they are not ideal.

Which is better, Critical Illness Cover or Income Protection Insurance?

This is a difficult question to answer and one that does not have an answer that fits all. It depends on your circumstances, requirements, concerns, etc. you should really speak to an adviser about the cover or compare the products yourself online.

The table below gives you a general idea as to the differences Critical Illness Cover and Income Protection Insurance:

Critical Illness Cover Income Protection Insurance
Lump sum payout Monthly payout
Insurance cover for diagnosis of a Critical Illness of a specified severity Insurance cover for the inability to work due to illness or injury
Insurance cover linked directly to your standard of living for life Insurance cover directly linked to your employment and occupation
Money to help pay for enhanced medical treatment Replacement of regular monthly income to cover bills
Money to cover the loss of income of a partner taking a sabbatical to look after you Ability to top up reduced sick pay to a monthly income appropriate to cover your bills
Should you make a successful Critical Illness claim you are highly unlikely to be able to insure yourself against any further serious illnesses. Ability to reinstate policy once you return to work
No end value, if you do not make a successful Critical Illness claim you will not receive any return on the premiums you have paid No end value, if you do not make a successful Income Protection claim you will not receive any return on the premiums you have paid

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