Why cover?
  • affects 1 in 4 women / 1 in 5 men before retirement
  • 94.1% of the critical illness claims are paid
  • protect yourself and your family if you get seriously ill
Why us?
  • get the cover that will pay when you need it
  • save up to 35%, cover from £5 a month
  • free, fast and without obligation quotes
Insurers: Aviva, Legal & General, Liverpool Victoria, Scottish Widows, Vitality, Zurich

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


Critical illness Income Protection
  • When you qualify, you can get a substantial lump sum, sometimes big enough to pay off debts (i.e. mortgages, car loans, etc.)and for a major treatment/operation
  • You’re free to spend the money however you like
  • The cover amount is something you choose and is not based on your current income
  • You can recover from your critical illness and go back to work – it will not affect your benefit payment.
  • Some critical illness plans are offered for the whole of one’s life.
  • There’s a potential for an extended payout where you continue receiving the benefit payments for as long as you remain disabled.
  • You are assured of a regular income, even when you’re not able to work.
  • For self-employed individuals, this is a good safeguard, since one does not have the “safety net” of an employer’s sick pay benefit plan
  • This can be more expensive than income protection, especially if you’re getting one with a comprehensive list of critical illnesses
  • Definitions and exclusions may limit the extent of the cover
  • The policy’s definition of “disability” may limit coverage, depending on whether your policy is based on “your own occupation”, a suited occupation or “activities of daily work”
  • The benefit amount is limited to your current income.

Other Health-Related Products

Here are some products that also meet specific health-protection needs:

Last updated on: 18.1.2013

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