Income protection and critical illness cover: what’s the difference?

PUBLISHED: 10:35 14 October 2020 | UPDATED: 10:35 14 October 2020

Ask the expert about critical illness insurance and income protection in Norfolk    Picture: Getty

Ask the expert about critical illness insurance and income protection in Norfolk Picture: Getty


Matthew Beck is a Chartered Financial Planner at Smith & Pinching advising on different types of life insurance policies available.

Matthew Beck is an Independent Financial Adviser         Picture: Smith & PinchingMatthew Beck is an Independent Financial Adviser Picture: Smith & Pinching

Having read your answer to a question about life insurance and other protection a few weeks ago, I’ve been looking at increasing my coverage for different situations. I’m considering either income protection or critical illness cover but don’t really understand the difference. Can you explain what is covered with each, please?

Matthew Beck of Smith & Pinching responds:

There is a tendency to get these two types of cover confused, but they are very different. In an ideal world you might take out both – and for some people that will be suitable – but it will depend on your own specific set of circumstances.

Income protection offers financial support to replace a portion of your income if you are unable to work because of illness or injury. You pay a premium on an agreed basis: this can either be a minimum payment term of a couple of years or an ongoing premium. Insurance companies provide these types of plans and so do some Friendly Societies.

Cover is normally available to anyone from age 17 years and up until typically 70 years although some providers will have an upper age limit at entry. The policy will detail the circumstances under which you can claim, but generally speaking income protection policies will cover you for any injury or illness that causes you to become ‘incapacitated’ and unable to work. It’s important to read the policy carefully as there may be exclusions.

If you fall ill within the parameters of the cover and your claim is approved, you receive a monthly tax-free payment until you are able to return to work, reach the retirement age under the plan or on earlier death (whichever occurs soonest). There will normally be a ‘deferred period’ at the point at which you become unable to work during which no income is received from the policy. This deferred period is selected when the policy is taken out and can be as little as four weeks or as much as a whole year and will typically be set up to kick in at the point your employer’s sick pay cover ends or the point at which your savings would no longer cover your needs. It would be a good idea to ask your employer for their policy in respect to the benefits they pay before setting up any standalone plan so there is no duplication.

Critical illness insurance provides a completely different type of cover. This provides a one-off, tax-exempt payment for the person insured if they are diagnosed with one of a range of serious illnesses that are specified by the insurer, at a level of severity that will be detailed in the policy. It’s important to understand that a critical illness policy will not cover any illness or injury that is not specified in the policy, however serious an impact it has on the sufferer. Each insurer will have slightly different definitions and severity levels to pinpoint when benefits are payable.

I recommend you talk your needs through with an independent financial adviser to explore what would be right for you in terms of the perfect balance between affordability and financial security.

This is a marketing communication: any opinions expressed in this article do not constitute advice.

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