Critical Illness Cover and Income protection are often compared against each other. There are, however, vast differences between the two.

Critical Illness cover is lump sum protection in most cases. The benefit is either decreasing in line with a repayment mortgage or level where the same amount of cover would be paid out within the term of the policy. The cover itself is defined in that only certain illnesses are covered which are clearly displayed in the key features document. The illnesses covered vary from provider to provider but it is worth comparing them as some providers will have up to 12 more illnesses covered than others.

Income protection is what it says it is. If you cannot work due to accident or illness then a replacement income is paid to you each month or week. The income is paid to you tax free and can increase each year in line with the retail price index. There are maximum benefits claimable which vary from provider to provider but generally the maximum is 60% of your original income before illness. This, of course, is tax free. There are very few exclusions to an income protection policy in that they pay out for any accident or any illness which stops you from working. The two highest claim areas are stress and back injuries.

So looking at the differences most people would ask which is better? Which one should I go for? The answer is both. Imagine an illness that stops you from working permanently.

The critical illness policy pays out a lump sum which could be used to pay for additional treatment, make alterations to the house, pay off the mortgage etc. The money won't last forever but you cannot work and you have also lost an income. An income protection policy would continue to pay a replacement income up until the point of retirement, if you return to work, or death within the term, whichever is earliest. That replacement income could also be used to fund for a personal pension too.

Clearly Critical Illness Cover and Income Protection are very different from each other and shouldn't be compared to one another. They actually work best together.



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