If you’re in the market for protection insurance right now, but especially if you have never actually purchased such a plan in the past, you might understandably feel overwhelmed or confused about the many areas of ‘overlap’ across the various types of policy available.
One potential area of confusion relates to the differences between a critical illness insurance policy, and an income protection one.
Both types of policy appear to provide a layer of financial protection in the event of the policyholder suffering from illness - so what factors truly distinguish them from each other? And how might this impact on the decision you make between these two forms of protection cover?
Defining these two potentially crucial forms of cover
As you might have already seen if you have perused the QuoteLifeCover website, there are certain key differences between these two types of cover.
One of the most obvious of those differences is that income protection insurance - if the policyholder makes a successful claim on it - pays out a sum of money every month for a certain period of time. These payments effectively constitute a ‘replacement’ of the policyholder’s usual income in the event of sickness or injury preventing them from working - except that the monthly amount paid out is typically limited to 65% of their normal monthly salary or income.
Critical illness cover, on the other hand, doesn’t pay out on a monthly basis over time like this. Instead, if you make a claim on this policy that is approved by your insurer, you will receive a one-off tax-free lump-sum payment - and that’s it. After this payment, the policy will end.
How do these forms of cover vary in the illnesses that they protect you for?
Something else you need to appreciate about these two types of insurance is that while they both help protect the policyholder in cases of illness, the exact way in which they relate to illness is different.
A critical illness insurance policy will typically set out the specific illnesses that it covers in its terms and conditions, so it is important to scrutinise the list of illnesses when you are considering a particular policy. If you attempt to make a claim in relation to an illness that isn’t stated in your policy, you won’t get a payout.
Income protection insurance, on the other hand, uses a broader definition of illness and injury than critical illness cover. So for example, if you were to suffer from back problems or depression that prevented you from working and earning an income, you might find that an income protection insurance policy would pay out in such circumstances, but a critical illness policy wouldn’t.
Does that effectively make income protection the wiser choice of protection policy if you are anxious to ensure your policy will definitely pay out in the event of the worst happening? Our answer to that is... not necessarily.
After all, some critical illness insurance policies can be more comprehensive than others in terms of how many health conditions they cover. Also, you might feel that your circumstances would make a one-off lump-sum payment more beneficial for you than money paid out gradually over time. If you have especially large outstanding obligations such as a mortgage, you might find that a critical illness policy would better cover you for these bigger expenses.
There’s a lot more that we could say about the differences between critical illness cover and income protection insurance - as well as, of course, the similarities. Please feel free to call 0800 316 6917 today for a more in-depth conversation about your own circumstances, so that we can provide tailored advice and help put together a policy that perfectly caters to your needs.