What is income protection and critical illness cover?

What is income protection and critical illness cover?

Considering what the UK has experienced in the last year with Covid-19 and the furlough scheme, it’s important to know about critical illness cover and income protection, the differences between the two, and who they’re suitable for.

Nearly 50% of UK households say that they would struggle financially if the main earner was unable to work for 6 months due to illness or disability.

Despite this, only 3 in 10 UK adults have any form of protection policy which might compensate for their income if they were to fall ill, or deliver a lump sum if they were diagnosed with a critical illness.

Since the Furlough scheme began in April 2020, 11.4 million jobs have been furloughed. Without appropriate support, many people would have been left without the means to survive financially.

It woke people up to the fact that financial stability isn’t guaranteed. On an individual level, the state of one’s health can significantly affect our ability to earn and maintain financial security.

This is where critical illness cover and income protection can be of use.

What is income protection?

Income protection (sometimes referred to as permanent health insurance) is a long-term insurance policy that provides you with an income if you can’t work due to illness or injury.

With more than 141 million days lost to sickness absence in 2018, we all know that ill health can have a massive impact on our lives.

Income Protection is designed to help you maintain your lifestyle while you are unable to work, so you can recover without the need to rush back to work.

It pays a proportion of your income each month, usually working around your sick pay arrangement with work if you have any. This is one reason it’s particularly recommended for self-employed people or those without access to statutory sick pay.

What is critical illness cover?

Critical illness cover, also known as critical illness insurance, is another long-term insurance policy. Except this one pays a single, tax-free lump sum if you’re diagnosed with a defined illness during the policy term.

Knowing that the policy can help pay for your mortgage, rent, debts, or alterations to your home (such as wheelchair access) can give you peace of mind.

The policy usually covers a set amount of conditions – for example, some of  that you may be diagnosed with during a policy term.

What’s the difference between income protection and critical illness cover?

These two types of policies differ in two particular ways:

1) The scope of conditions covered

  • Critical illness covers you only if you’re diagnosed with a specific list of serious, potentially life-threatening illnesses (e.g. cancer, a heart attack and motor neurone disease).
  • Income protection offers a much broader definition of illness and injury, covering things like a bad back or severe anxiety

2) The way your money is paid out to you after a successful claim

  • Critical illness cover pays you a single, tax-free lump sum.
  • Whereas income protection provides you with a percentage of your salary as a regular payment.

Do I need income protection or critical illness cover?

Whether you need either policy (or both) is down to you, but looking at your individual circumstances is a good start.

If you were to become ill, injured or disabled, would you be able to continue maintaining the lifestyle you have now? Depending on your condition, would you have the right financial support in place if you were no longer able to earn?

Some people might be able to rely on an employee benefits package or savings. But if you were unable to work due to illness or injury, Employment and Support Allowance might only be able to provide you with just over £100 a week.

Is income protection and critical illness cover for everyone?

We’ll be honest with you – neither policy is necessarily for everyone. They may not be suitable for you if:

  • Your employer offers a generous benefits package which would provide you with an income for multiple years if you were to become ill.
  • Government benefits would cover all your expenses.
  • You have enough savings to support yourself over any stretch of time, covering bills, loans, medical costs or a mortgage.
  • In the event that you’re working you are able to take early retirement.
  • Your partner or family could support you.

One way to find out for certain whether you might benefit from income protection or critical illness cover is by speaking to us.

At HWIFM, our first priority is you – if we don’t believe a policy is the right choice for you, we will tell you. Explore exactly how you can better protect you and your family by getting in touch with our team.

Call us on 01606 338914 or email hello@hwifm.co.uk – we look forward to hearing from you soon.

HWIFM – Always by your side