Critical Illness vs. Income Protection insurance: Compare the Pros and Cons
One fear about being critically ill is that you are no longer able to earn an income in order to provide for your family. Insurance is one way of protecting you from the financial impact of being ill.
The question is, what is the right product to fit your specific needs? If you do survive a critical illness but are no longer able to work, what type of cover is the best fit for you? If you are diagnosed with such illness, do you have the funds to pay for the treatments, as well as cover the usual financial obligations (your mortgage, your day-to-day household needs, and your child’s education)?
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Critical Illness vs. Income Protection Insurance
Critical Illness cover provides a lump sum when you are diagnosed with a covered illness. Meanwhile, income protection insurance provides a regular portion of one’s income if one is unable to work.
What do they have in common?
Here are some of the things that both products have in common:
- They provide coverage for illness. For both products, you get a certain amount in the event that you get sick.
- Freedom to use the insurance proceeds. Payments are usually made directly to you and you can choose to spend the money you get from your insurer however you want.
- Tax-free payouts. Payouts for both products are tax-free, except in instances where the income protection insurance is part of an employer scheme. In this case, payments are treated as income and taxed as normal.
- Exclusions to the policy. Both products generally exclude illnesses arising from alcohol and drugs, illnesses related to pregnancy and pre-existing conditions.
What are their differences?
However, the similarities end there. The table below illustrates the differences between the two:
Critical Illness Cover | Income Protection Cover | |
---|---|---|
Why buy this product? |
This provides you with a lump sum you can spend for your treatments, to pay off a mortgage or to provide for the family’s daily needs. |
This provides you with a portion of your current salary. |
How claims are paid? |
One-time payment of a lump sum. |
Monthly, for a limited number of months (usually 6 to 12 months, depending on the kind of policy you have). This provides a continuing income until the person has recovered or has found alternative sources of income. |
Payment for disability |
This coverage will also pay when the Insured is declared disabled, but the disability must be total and permanent, meaning there is no chance for recovery. |
This will pay for disability as long as it prevents you from working and earning an income. |
Amount of payment |
This pays for the full amount, which is the sum assured for the main benefit. |
This pays up to a certain percent of your gross monthly income, subject to the policy’s maximum limits. The benefits are usually set at 65% up to 80% of your income. |
Types of illnesses |
The policy will have a list of critical illnesses covered. Any illnesses not included in the list will not be considered payable. |
The policy will pay when the illness or injury prevents the Insured from working. This means that it covers practically any medical condition, as long as you cannot work due to the condition. |
Termination of the policy |
After the lump sum payment is made, the policy ceases to be effective. |
The Insured can have multiple claims for different conditions, as long as the policy is kept in force. |
Joint policies? |
This can be bought together with a life insurance policy. |
This is taken as a separate policy. |
Number of allowable claims |
You can claim only once. Once the main benefit is claimed, the policy cover expires and no further payments are made. |
Multiple claims are allowed within the term of the policy. |
Weighing the Pros and Cons for Critical Illness and Income Protection
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Critical illness | Income Protection |
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Pros |
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Cons |
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Other Health-Related Products
Here are some products that also meet specific health-protection needs:
- Long term care insurance. Learn if this option is better for you by reading our comparison article Critical Illness insurance vs. Long Term Care insurance.
- Disability insurance. See if this insurance is better for your needs by reading our comparison article Critical Illness insurance vs. Disability insurance.
- Hospitalization and Surgical Plan. Learn if this plan is better for you by reading the comparison article Critical Illness plan vs. Hospitalization and Surgical plan.
- Life insurance with Critical Illness Option. Learn the pros and cons of this option by reading our comparison article (critical vs. terminal illness cover)
- Critical Illness riders. Know more about this option by reading our article about strengthening your critical illness cover.
- Health insurance or Sickness Cover
- Employer private medical Insurance
- Employer Compensation
Last updated on: 18.1.2013
To protect yourself and your family, save up to 35%, please fill the critical illness cover + life insurance form on the right now.
Recommended useful information to read:
- Dos and Don’ts when making critical illness insurance claims
- What you should know about your critical illness cover: the exclusions to your policy
- Things to consider before getting a critical illness insurance policy
- Are you at risk? Critical illnesses you may be susceptible to
- Save up on premiums: factors that affect your critical illness insurance premiums