Critical Illness Cover Or Income Protection?

by | Monday 17th Dec 2018 | Mortgage Insights

Critical illness patient

At Oportfolio, we know that success in life is only really possible when you have financial security – and in a competitive and challenging economic environment, that can be hard to come by. Having financial protection is one way of making sure you can meet your commitments when life throws you a curveball and you find yourself unable to work whether through a change in employment circumstances or critical illness.

But with so many different products on the market – and so many providers to choose from – working out which product is the right one for your potential needs isn’t always terribly easy, particularly since it’s impossible to predict exactly what your circumstances might be at any given time in the future.

Two of the most familiar insurance products that protect your personal finances are critical illness cover and income protection insurance.

So how do you make the choice between the two? Unless you have some specialist knowledge of the market, trying to evaluate and compare products yourself can risk making a choice that doesn’t really achieve what you wanted.

The simple answer, of course, is to use a professional broker who can advise you on the best solution according to what you think you might require and can access a wide range of products to give you flexible options.

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

Understanding what you’re paying for and the way in which it might benefit you is the obvious first step when it comes to buying any product, whether that’s a dishwasher, a coat or an insurance policy. So let’s start there.

Critical illness cover is an insurance policy which will pay out a fixed lump sum should you be unfortunate enough to contract one of a number of specified illnesses listed in your policy that stop you from earning. Crucially, if you contract a serious illness which isn’t listed on the insurance schedule, the policy will not pay out. Once a policy pays out, cover ends – so in most cases this type policy is valid for a single claim.

Income protection cover is an insurance product that will replace your regular monthly income should you find yourself unable to work either permanently or temporarily for any reason as defined by the policy. If you’re able to return to work, the payments will cease; however, cover (and premiums) will usually continue, meaning that most policies of this type allow for multiple claims.

What’s the cost?

Inevitably, when it comes to both policies the cost depends on your circumstances, salary and the level of cover you require. The cost of replacing a salary of £80,000 is clearly going to be costlier than a policy that protects and income of £30,000, assuming all other circumstances are the same

However, as a very broad rule of thumb, a report from FT Adviser suggests that to provide an income of £250,000 over 5 years (whether in instalments via income protection or a lump sum as critical illness), the cost of critical illness cover is about three times that of income protection.

So, if income replacement is generally cheaper, is that a better option?

Not necessarily, no. Critical illness outsells income replacement by roughly 5 to 1 in the UK because many people prefer to have a lump sum that will allow them to juggle their immediate priorities in a more flexible way.

But although a lump sum will allow you to pay off, say, your mortgage, that’s of little use if you can’t then meet your other financial commitments. One also needs to come to a judgement over how and when you’re most likely to claim on either policy.

Recent data, from the same FT Adviser report quoted above, suggests 60% of all income replacement claims are made as a result of accidents, stress or musculoskeletal conditions – none of which would be covered by a critical illness policy.

By contrast, cancer – which is one of the conditions specified within a critical illness policy – accounts for only 15% of income replacement claims

So, it’s clear that understanding the risks as well as the benefits are a fundamental part of choosing the right insurance product, and that’s why it makes sense to speak to a specialist professional adviser before you commit.

It all seems very complicated. Why do I need income protection at all?

While many companies offer some level of financial support for employees when they can’t work, very few provide that assistance beyond a year (and for many more, it’s much less). There are state benefits which are designed to offer some sort of help, but these would be unlikely to cover the financial commitments of a high earning individual.

At Oportfolio, we’ll work closely with you to help you to identify the advantages and disadvantages of both types of insurance and recommend the best solution for you personally.

Knowing you and your family are protected when times get tough is great for protecting your success in life – but deciding the best way of doing that requires expert knowledge and advice.

To find out more about our friendly service why not visit or give us a call on 020 7371 5063

Please note for these insurance products terms and conditions apply. This information is a summary only. You will receive a full policy document upon application. This policy will set out the terms, conditions and limitations of cover provided under the plan

Your property may be repossessed if you do not keep up repayments on your mortgage.

Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.

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