Criticall Illness Insurance | Income Protection Insurance | |
What's covered? | Only critical illnesses specified in the policy. Some of these illnesses might have to be judged severe enough for you to qualify for a payout. | Most illnesses or disability severe enough to prevent you from working, including stress or back problems. |
How are payouts made? | You’ll usually get a single lump sum payment directly to you. | After a qualifying period, you’ll get regular payments. |
Can you claim more than once? | No. The policy only pays out for one claim, which is for the total amount of cover, eg £50,000. This is usually paid as a lump sum but can also be taken as regular income if it is set up under what’s called a ‘family income benefit’ policy. | Yes - you can make as many claims as you need during the term of the policy. |
Are payouts tax-free? | Yes. | Yes - unless it's an employer scheme - in which case your payments will be taxed as normal. |
How is a payout calculated? | You are insured for a certain amount, eg £50,000, which can be paid out at any time during the term of the policy if you make a successful claim. | Payments are a percentage of your earnings - usually a maximum of 50% to 65%. |
What's not covered? | Alcohol and drug-related illness | Alcohol and drug-related illness |
Pregnancy-related illness | Pregnancy-related illness | |
Pre-existing medical conditions | Pre-existing medical conditions | |
Pros? | You can choose the amount of cover you want – it’s not linked to your income. | It’s especially useful if you’re self-employed and do not benefit from an employer’s sick pay scheme. |
The lump sum you get if you claim can be big enough to pay off your mortgage, loans, etc. | Given that it could potentially pay out for many years, it is very cost effective. | |
Cons? | Complex definitions of cover have led to complaints that the products are not easy to understand and exclusions are not fully explained. For example only some types of cancer at certain stages are covered. | Premiums are based on your occupation. If you change jobs you’ll need to review the policy. |
Critical Illness vs Income Protection
The difference between these types of protection can sometimes come into question, so MediFinancial have created a table with the comparison between Critical Illness Cover and Income Protection.
Posted by: Anne Barker on 08 Jun 2015