Income protection insurance vs critical illness [Quick summary]

  • Income protection provides monthly payments if you’re unable to work due to illness or injury
  • Critical illness cover provides a lump sum if you’re diagnosed with a specific serious illness
  • Income protection can be taken out on a short-term or long-term basis
  • Critical illness cover can be added to a life insurance policy for an additional cost or secured as a standalone policy through some insurers
  • Both policies can help to replace lost income and allow you to continue with your current standard of living should the unexpected happen
  • Both income protection and critical illness cover are available through Reassured. Compare quotes to find the right policy for your needs

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

While both policies pay out to help protect you against illness, there are many differences between the two policy types.

The main differences between income protection (IP) and critical illness cover (CIC) are:

  • How you’ll receive your payment
  • How much you’ll receive
  • The conditions you’ll be covered for

Income protection pays you a regular monthly income (usually between 50% - 70% of your pre-tax earnings) if you’re unable to work due to illness or injury.

Whereas critical illness cover pays out one lump sum payment if you’re diagnosed with a specific serious illness.

Many ask ‘is income protection better than critical illness cover?’, but the truth is, one isn’t necessarily better than the other. It just depends on your personal circumstances and what you want to cover.

Income protectionCritical illness cover
What circumstances does it pay out for?If you’re too ill or injured to workIf you’re diagnosed with a specific serious illness
When can you make a claim?You can make a claim after your first sick day. However, your payments won’t start until a deferred (or waiting) period has passedYou can claim after being diagnosed with one of the conditions listed in your policy
How will you receive the payment?You’ll receive monthly payments (to mimic an income)You’ll receive one lump sum payment
How much will be paid out?Up to 70% of your income (before tax) could be paid outA sum assured of your choosing will be paid out
How much does it cost?Prices start from 20p-a-day ‡ through Reassured’s advised teamPrices start from 33p-a-day º through Reassured

Keep reading as we explore these two options. Topics covered include:

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What is income protection?

Income protection is a financial protection policy which can pay out a percentage of your income while you’re unable to work due to illness or injury.

Monthly payments can be used to help cover daily living expenses, such as:

  • Rent or mortgage payments
  • Household bills
  • Credit card or loan payments
  • Leisure costs

If you don’t benefit from sick pay or have savings, income protection could be essential in allowing you to keep up with our monthly outgoings.

Read our complete income protection guide for more information.

How much income protection insurance do you need?

Enter the fields which apply to you to calculate the level of income protection cover you might require to help cover key costs.

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£723 a month is the average monthly mortgage payment in the UK, with the average monthly rental price coming in at £700.

The majority of our monthly income will go towards rental or mortgage payments.

For this reason, it’s essential to have precautions in place to ensure you could keep up to date with your payments if you weren’t receiving your usual income.

Monthly income protection payments can help to cover this large expense and ensure you can stay in your home.
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According to the Money Advice Service, the average household spends £340 a month on household bills.

This includes electricity, gas, TV and broadband.
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Childcare costs are on the rise with it now costing £137.69 per week for part-time nursery for a child under the age of two.

That’s over £550 per month - is this an amount you’d be able to keep up with if you were unable to work?

Becoming ill could also result in the need for additional childcare while you attend doctors’ appointments or medical treatment.
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The average household in the UK spends around £97 a week on their food shop, totaling £388 a month.

While this may seem like a small amount in comparison to some of the other expenses mentioned, the food shop is often where we try to scrimp and save when we fall on hard times.

Income protection can take care of the cost of your weekly food shop, as well as many other essential costs.
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At the beginning of 2020, credit card debt in the UK was at £2.1 billion, with almost 27 million UK residents in some kind of debt.

Becoming unable to work could make it hard to keep up with credit card or loan payments (including car finance or other financed goods).

Failure to keep up with payments could result in additional interest being incurred or late fees issues - resulting in a higher total needing to be paid.
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The average spent on public transport each month comes to an average of £94.

This includes the cost of public transport, as well as petrol and diesel vehicles.

While this amount may reduce while you’re unable to work as you won’t need to commute there may be additional spending on public transportation if your illness or injury leaves you unable to drive.
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Your total cover estimate

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What is critical illness cover?

Critical illness cover is a policy which is most commonly added to a life insurance policy (for an extra cost) to provide an additional layer of protection, although standalone cover is available through some insurers.

It allows you to make a claim if you’re diagnosed with a specific illness that’s listed within the policy terms and conditions.

The lump sum pay out could help to:

  • Replace lost income while you’re unable to work
  • Cover private medical bills
  • Pay for carers
  • Fund necessary adaptions to your home

If you have large financial commitments (such as a mortgage or family living costs) to take care of, critical illness cover could be a vital lifeline.

Read our comprehensive critical illness cover guide for more information.

What does an income protection policy cover?

An income protection policy could cover you for any illness or injury that prevents you from working.

Unlike critical illness cover, there isn’t a specified list of conditions within your policy terms and conditions.

Instead, policies come with what’s known as a ‘definition of incapacity’ which outlines in what circumstances you’ll be able to make a claim.

Most policies come with an ‘own occupation’ definition which allows you to claim when you’re unable to do the day-to-day tasks associated with your job.

Common reasons for claiming on income protection include:

What does a critical illness policy cover?

Under a critical illness cover policy you’ll be covered for a specific list of illnesses. This list can vary between insurers.

Typically, it’s a list of 30 illnesses but this can be more or less depending on the insurer.

By ‘critical illness’ this refers to an illness that’s life-changing but not life threatening. The most common illnesses covered by critical illness cover are heart attack, cancer and stroke.

Polices also often include the following conditions:

  • Multiple sclerosis
  • HIV
  • Blindness
  • Deafness
  • Parkinson’s disease
  • Loss of limbs
  • Alzheimer’s disease

Below is a comparison of the circumstance in which you can claim for both critical illness cover and income protection:

EventIncome protectionCritical illness cover
Unemployment Icon ruby cross Icon ruby cross
Injury Icon green tick Icon ruby cross
Illness Icon green tick Icon green tick
Redundancy Icon ruby cross Icon ruby cross
Disability Icon green tick Icon green tick
(Some policies include total permanent disability)

What’s the cost of income protection vs critical illness cover?

Both income protection and critical illness cover require a monthly premium to be paid. The cost of your premium will be based on your personal circumstances as well as your chosen policy details.

Factors that impact the cost of income protection include:

Factors that impact the cost of critical illness cover include:

  • Age
  • Medical history
  • BMI
  • Occupation
  • Smoking status
  • Lifestyle
  • Policy details

Insurers will use this information to assess the level of risk you pose and an appropriate premium price will be calculated.

The pricing table below shows example quotes for income protection and critical illness cover.

AgeIncome protection
(short-term 12 months)		Income protection
(long-term until policy ends)		Critical illness cover
(with life insurance)
20£5.00£11.57£9.15
25£5.30£12.52£11.49
30£6.16£15.03£14.95
35£6.50£17.42£19.97
40£7.31£20.84£27.96
45£8.05£27.72£39.84
50£9.20£36.62£58.19


Income protection quotes are based on a non-smoker in good health, with an annual income of £30,000 and a maximum benefit amount for this income. Cover is until age 65 with a 6 month deferred period.

Critical illness cover quotes are based on a non-smoker in good health for a level term life insurance policy with critical illness cover added, a 20 year term and £50,000.

As you can see from the table, pricing can differ between the two policy types.

Comparing multiple options is essential to help you find the right cover for your budget.

What are the benefits of income protection?

Income protection offers many benefits, the most important being that it can provide you with peace of mind that you can keep up to date with your monthly payments should you fall unexpectedly ill or injured.

This can be particularly beneficial for self-employed workers or those who don’t receive traditional sick pay benefits from an employer.

The monthly payments you receive could also reduce the need for you to dip into any savings and/or borrow money from friends and family.

AdvantagesDisadvantages
Provides protection against illness and injuryDoesn’t cover any form of unemployment
Payments are monthly making them easy to budgetDoesn’t pay out your full income
Payments are tax-freeMonthly payments may not be sufficient to cover any large expenses
It’s possible to make multiple claims throughout the policy termCan’t be added to a life insurance policy
Could pay out for any illness or injury that leaves you unable to workPre-existing illnesses will likely be excluded from your cover
Compare Income Protection Quotes »

What are the benefits of critical illness cover?

Like with income protection, the main benefit of critical illness cover is that it can provide you with peace of mind that you can continue your current standard of living if you fall unexpectedly ill.

The lump sum payment could be beneficial in helping to replace income while you’re unable to work and/or paying for any necessary medical fees/home adaptions/carers.

AdvantagesDisadvantages
Can be added to a life insurance policy to provide an extra layer of protectionNot available as a standalone policy through all insurers
Lump sum payment can help to protect large expensesYour condition will need to be listed within your policy and must match the insurers definition
Cover often includes children’s critical illness cover (or it can be added for an additional cost) to protect your childrenPre-existing illnesses will likely be excluded from your cover
Pays out of a variety of common serious illnesses

If you’re still unsure which policy option is best for your needs, contact Reassured.

Our advised team can help you conduct a full income protection vs critical illness comparison and provide you with personalised recommendations.

Compare Income Protection vs Critical Illness Cover Quotes »

Should I choose income protection or critical illness cover?

Which option is best for you will ultimately depend on your personal circumstances.

7% of working-age people are economically inactive due to ill-health[1], suggesting some form of cover could be beneficial should you fall ill.

While both options protect you against illness, they do so in different ways.

If you’d prefer to receive monthly payments, income protection could be a good option. Whereas if you’d benefit from a lump sum, critical illness cover could be a more suitable option.

It doesn’t always have to be a choice between one or the other. If it’s within your budget, it’s possible to secure both income protection and critical illness cover.

Speaking to an expert can help you establish the best cover solution for your needs.

Our advised team can help you compare both income protection and critical illness options, free of charge.

Compare income protection vs critical illness cover [Find the right cover]

Using our advised service you can compare both income protection and critical illness cover (when added to a life insurance policy).

A friendly member of the team can talk through your cover requirements and provide personalised recommendations on what might be best for your needs.

You’ll also be able to compare quotes from the whole of the market, saving you time and money.

Income protection starts from 20p-a-day through Reassured, while life insurance with critical illness cover starts from 33p-a-day.

Get in touch today for your fee-free quotes.

Compare Whole of Market Quotes » Find the Best Deal

Sources:

[1] https://commonslibrary.parliament.uk/economic-update-inactivity-due-to-illness-reaches-record/

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