Insurance can be confusing, so we are making it our mission to explain all the different aspects of it in a way that makes sense. If you’ve read some of our previous articles, you know that we discuss income protection in detail, running you through what it is and whether or not it is worth it. We have also started a mini series comparing income protection insurance to other life and income insurance policies.
We’ve already explained the differences between income protection and life insurance, this time we are detailing the similarities and differences between income protection insurance and critical illness cover.
What is income protection insurance?
Income protection insurance is a comprehensive policy that ensures a stable income if you find yourself unable to work due to illness or injury. This income can continue until your retirement, for a fixed period, or until you are well enough to go back to work, depending on which comes first.
What is critical illness cover?
Critical illness cover is actually closer to life insurance than income protection, as it provides a lump-sum payment if you are diagnosed with a specified critical illness or medical condition. These conditions include serious illnesses such as cancer, heart attack, stroke, and other major medical issues.
The purpose of critical illness cover is to offer financial support to you and your family, helping cover medical expenses, living costs, or anything else that may arise due to the illness. The payout is usually a one-time lump sum and is separate from any regular income replacement provided by other insurance policies like disability or life insurance.
What is covered under income protection?
As we’ve said, income protection insurance is designed to replace a portion of your lost income during the period that you are unable to work. It includes protection for various health issues such as cancer, heart attack, stroke, injuries, and other conditions that may prevent you from working.
Some policies also offer coverage for partial disability, ensuring you receive benefits even if you can still work in a reduced capacity or part-time.
What is covered under critical illness?
Critical illness policies typically cover you for a list of severe and life-threatening medical conditions. This list, depending on your policy, can be anywhere from around 50 to over 180 medical conditions.
The covered conditions often include cancer, heart attack, stroke, kidney failure, major organ transplants, paralysis, major organ failure, and loss of limbs due to accidents or certain medical conditions.
What isn’t covered under income protection?
Income protection insurance comes with specific exclusions that policyholders should be mindful of. Generally, pre-existing conditions, deliberate self-harm, injuries from illegal activities, and certain high-risk occupations or activities may not be covered. Additionally, normal childbirth and pregnancy aren’t usually included, along with short-term illnesses or injuries.
As well as this, income protection insurance only covers you if you have to stop working due to illness or injury - it does not include redundancy or getting fired.
What isn’t covered under critical illness?
Critical illness policies have specific exclusions that depend on your insurer. Some of the common exclusions of critical illness policies include pre-existing conditions, certain types and stages of cancer, non-life-threatening conditions, injuries from deliberate self-harm, conditions that happen as a result of being involved in illegal activities, and injuries or illnesses connected to specific high-risk occupations or activities.
As well as this, certain pre-existing health conditions may have waiting periods or limitations, and injuries sustained while under the influence of alcohol or illegal substances may be excluded completely.
What is the payout of income protection?
As long as your policy remains active, it supplements a portion of your income, usually between 50% to 65%, and you can make as many claims as you need throughout the duration of the policy.
Typically, a waiting period has to be completed before your payments will start. Depending on your policy and provider, you can often choose your waiting period. Opting for a longer waiting period means your monthly premiums will be lower. Common waiting period options include 4 weeks, 13 weeks, 26 weeks, and one year.
What is the payout of critical illness?
The payout for critical illness cover is a one-time payment that you would receive upon the diagnosis of a covered critical illness. There are a number of different factors that could affect the specific amount that you receive. These factors depend on the policy and insurer.
Usually when you purchase critical illness cover, you would select a ‘sum insured’ amount - otherwise known as a coverage amount. This sum shows the maximum amount the policy will pay out in the event of a covered critical illness. According to Drewberry Critical Illness Cover Claim Payout Rates report, the average payout on a critical illness policy in 2021 was more than £67,000.
Different policies cover different critical illnesses, and the severity of the illness may also impact the payout. For example, some policies may differentiate between early and advanced stages of certain illnesses, providing different benefit amounts for each stage.
How much does income protection cost?
The cost of your income protection insurance policy depends on various factors, including your specific policy and individual circumstances. The monthly premiums can fluctuate based on:
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Age: Younger individuals may pay lower premiums than older individuals.
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Occupation: Certain occupations might carry higher risks, impacting the cost of insurance.
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Percentage of income covered: The amount of your income you choose to cover through the policy will affect the cost.
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Overall health: Your current health, weight, and family medical history are important factors.
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Smoking habits: Whether you smoke or have smoked in the past can influence the cost.
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Waiting period: The longer the waiting period usually means the cheaper the monthly cost.
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Range of illnesses and injuries: A bigger range of included conditions means more expensive monthly premiums.
Another influencing factor is the type of premium you choose: standard, which can go up over time, or guaranteed, which stays the same for the entire policy duration. Although guaranteed premiums may have higher initial costs, many people prefer them because they provide a sense of stability.
How much does critical illness cost?
Similarly to income protection insurance, the amount you will pay for your critical life cover depends on a range of different factors, including:
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Age: Policies are more affordable when you're younger.
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Coverage amount: The higher the level of coverage you purchase, the more expensive it will be.
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Health: Insurers evaluate your medical history to guess the likelihood of future claims.
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Smoking status: Smoking or vaping may lead to slightly higher costs due to associated health risks.
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Policy term: The longer you take out a policy for, usually the cheaper the premiums are.
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Occupation: Certain job roles with higher risk levels, such as working at heights, can make the premiums more expensive.
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Extra Benefits: Adding extras, such as children's cover, may cause the policy to cost slightly more.
Do you need to have both policies?
No you don’t. It isn’t a legal requirement to have either or both policies. However, they are a good way of reducing anxiety and stress if the worst were to happen.
According to Macmillan, 83% of people with cancer in the UK face an average cost of £891 a month in travel, parking and increased living costs, on top of their usual bills.
As well as this, the Financial Conduct Authority’s Financial Lives 2022 Survey reported that 7.8 million people are already struggling to keep up with bills. If you lost your job due to illness or injury, it would be a lot harder for most people to pay their mortgage and bills.
How Wiltshire Friendly can help
Wiltshire Friendly specialises in delivering income protection solutions to those facing income loss due to illness or injury that impacts their ability to work.
We work with individuals, employers, and sports players across different levels—ranging from amateurs to semi-professionals and professionals.
If you find yourself in a situation where you need to make a claim, apply for increased coverage, or discuss your specific requirements, get in touch with us today. We're here to assist you.