Income Protection vs Critical Illness Cover

by | Friday 5th Jan 2024 | Mortgage Insights

In today’s unpredictable economy, being successful and prospering usually boils down to keeping your finances in check. To safeguard against these uncertainties, financial protection becomes essential, especially if you have people and assets to protect. And two prevalent insurance products—critical illness cover and income protection insurance—stand out.

With a multitude of products and providers in the market, determining the right fit for your specific needs can be a daunting task and if you already have policies in place, reviewing them can also seem quite scary. The inability to predict future circumstances further complicates decision-making. In this blog we are going to delve into the ins and outs of critical illness cover and income protection insurance, helping you to make an informed choice tailored to your unique circumstances.

Income Protection vs Critical Illness

The Basics: What Sets Them Apart?

So, what is the difference between the two types of insurance? And which one do you really need? Critical illness or income protection? To understand the debate of critical illness cover vs income protection, you need to know the definitions of each in their simplest form.

Critical Illness Cover:

Critical illness cover operates as an insurance policy designed to offer a fixed lump sum pay-out upon diagnosis of a specified illness listed in the policy. This lump sum aims to alleviate financial burdens resulting from the inability to work due to the illness. It’s essential to note that the pay-out is contingent on the contracted illness being listed in the policy, and typically, this type of policy is valid for a single claim.

Income Protection Insurance:

Income protection insurance functions as a product that replaces the policyholder’s regular monthly income if they are unable to work, either permanently or temporarily, based on the policy’s defined criteria. Unlike critical illness cover, income protection allows for multiple claims, offering flexibility in managing unforeseen circumstances.

Critical Illness vs Income Protection

To delve deeper into the decision-making process, it’s crucial to understand the implications of choosing one over the other. Let’s explore various aspects, from costs to claim scenarios, to unravel the complexities of these insurance options.

Income Protection or Critical Illness: Affordability and Considerations

The cost of both critical illness cover and income protection insurance is ultimately linked to individual circumstances, salary, and the desired level of coverage. For instance, replacing the salary of £80,000 will naturally incur a higher cost than a policy covering a £30,000 income, assuming all other variables remain constant.

Critical Illness Cover: The Appeal of Lump Sum Pay-Outs

Despite income replacement often being more cost-effective, critical illness cover outsells income replacement by a significant margin in the UK. This is largely due to the appeal of receiving a lump sum pay-out, providing policyholders with the flexibility to address immediate financial priorities.

Life Insurance Critical Illness and Income Protection: The Facts

Recent research indicates that 60% of income replacement claims result from accidents, stress, or musculoskeletal conditions – scenarios not covered by a critical illness policy. On the flip side, critical illness policies typically cover conditions like cancer, which only accounts for 15% of income replacement claims.

Life Insurance with Critical Illness and Income Protection

Now that we have a firm grasp on the difference between income protection and critical illness, it’s time to start looking at the risks and benefits of each type of insurance. Something that only a qualified insurance specialist like our advisors at Oportfolio can help with.

Life Insurance Income Protection and Critical Illness

Life insurance products often offer a combination of critical illness and income protection coverage. This holistic approach aims to provide comprehensive protection, considering both immediate financial needs and sustained income replacement in the face of unforeseen health challenges.

Critical Illness and Income Protection: Weighing the Risks and Benefits

Understanding the risks and benefits associated with critical illness and income protection is fundamental to making an informed decision. Consulting with a specialist professional advisor becomes imperative to navigate the complexities and choose the right insurance product tailored to individual needs. Of course, the most obvious benefit of either critical illness or income protection is that you will receive money when you need it the most. Whether that is a temporary solution to keep your life in order or a more long-term thing that ensures that you and your family are safe and financially secure.

There are of course risks to taking out any kind of insurance, for example you may pay a high monthly premium to cover yourself which could tighten your purse strings per month, but ultimately it will be worth it to have the peace of mind. You may also risk not being covered if your policy does not include a certain scenario or certain disability.

However, you shouldn’t worry too much about this if you secure insurance through a broker such as ourselves at Oportfolio. Insurance advisors will carefully look at your situation and your needs and will help you to secure a protection policy that matches your individual needs so that you are as covered for as much as you need, for the most competitive price on the market.

The Importance of Income Protection

While some companies offer financial support for employees unable to work, this assistance often extends for a limited duration. Meaning that you won’t always be covered. There have been some horror stories of people assuming that their employer has them covered, when in fact they are not. Government benefits may offer some help in times of need, but they are unlikely to cover the financial commitments of high-earning individuals. And even for lower earners, they are often only enough to cover essential living support. Income protection insurance becomes a crucial lifeline, offering sustained financial support beyond what many employers or benefits provide.

Use a Qualified Advisor If You Are Considering Income Protection Insurance vs Critical Illness

If you or anyone else you know is considering income protection and/or critical illness cover, it couldn’t be simpler to start the process. All you need to do is contact our team at Oportfolio for a free initial insurance consultation. You will be put in touch directly with one of our insurance advisors who will guide you through the next steps. In the meantime, if you have any more questions about critical illness cover, you can read our blog ‘What Is Critical Illness Cover? Your Questions Answered’.

With Oportfolio you can gain access to expert guidance, ensuring a personalised recommendation that aligns with unique circumstances. Our advisors will be able to help you with understanding the difference between critical illness and income protection and help you to decide which one is best for you. Trust in the expertise of our insurance professionals to guide you through the complexities and recommend the optimal solution for long-term financial security. Call or email our team today to begin your insurance journey.

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