Insurance can be an expensive option for many people. Therefore it may be that they cannot afford to have insurance to cover everything. Therefore choices may have to be made. This could be between things such as income protection and critical illness cover.
What is Income Protection Insurance?
Income protection insurance will pay out if you are unable to work because you are unwell or unfit. This means that if you have an accident or have an illness or disease, then the insurance will pay out until you get back to work or retire. They will tend to pay out a percentage of your income, which is usually over 50% and sometimes up to 90% depending on the insurer.
What is Critical Illness Cover?
Critical illness insurance will pay out if you get a specific illness. The specific policy will determine which illnesses it will pay out for. It would pay out a tax-free lump sum on diagnosis of one of the illnesses that is covered in the policy.
Benefits of Income Protection
Income protection will help you get a decent income if you are not well enough to work. You may have some sick pay entitlement but this may not be equivalent to your full salary and it could get lower, if you are on long-term sick leave. Some companies will only pay out the statutory sick pay amount right from the start, which is likely to be less than your salary. The extra money will mean that you will have the time to make a good recovery before feeling pressure to return to work. You will not have the worry of money while you are unwell either, which could help you to make a better recovery by taking away a lot of the stress.
Benefits of Critical Illness
Critical illness insurance will give you a lump sum of money if you get diagnosed with certain illnesses. This money will allow you to be able to give up work or change your job to one that is healthier for you. If you need time away from work, then it will give you the means to be able to afford it. It may even be enough to pay for a holiday to allow you to get away and recuperate.
Choosing Between the Two
Critical illness cover is usually a lump sum. You can choose how much that lump sum will be and this will affect how much the insurance costs. With income protection you will get a percentage of your current income and so you have no influence over how much that will be. The lump sum could pay off a mortgage or other debts or could be invested to provide an income. The monthly payments will not change and will usually only be enough to cover monthly expenses.
Critical illness cover will just pay out once. However, income protection will continue to pay out until you retire or get better, which means it could pay out for a very long time. Both types of insurance can be expensive although by changing the term or the conditions it pays out under, this will lower the cost.
If you have a big debt that you would like to pay off if you become unwell then critical illness is the one to go for. However, if you are concerned about a lack of income if you get ill then income protection would be more useful to you. It will depend on your personal circumstances, what risk you feel you have of getting certain diseases and if the insurance covers them as well as what other sick pay benefits you have.