Guides

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Have you considered how you’d cope if your life suddenly changed? What if you could no longer work and your income stopped? How would those who rely on your income pay the mortgage, bills or childcare costs? 

Having some form of protection cover could help ease the financial pressure if the unexpected happens. Whether you need income protection or critical illness cover depends on your personal needs and circumstances. Both could be the vital financial lifeline you need to help you through a challenging time.

The key benefit of critical illness cover is the reassurance it can provide, allowing you to focus on treatment and recovery rather than money worries. A lump-sum payout could help cover your mortgage, everyday bills, medical costs, or any home adjustments you may need moving forward.

Income protection, however, pays a percentage of your salary as regular income if illness or injury prevents you from working, giving you essential support until you’re able to return. Income protection usually covers a wider range of common conditions like back problems or depression that may not be covered by a critical illness policy.  

Even if your employer offers sick pay, it’s worth checking how long it lasts, as support can vary widely and may reduce to Statutory Sick Pay, which is currently £118.75 per week, and is only paid for up to a maximum of 28 weeks. This amount may not be enough to cover your regular outgoings and support your financial dependents while you’re unable to work. Also because this is usually paid by your employer, it is not available to those who are self-employed.

It’s important to note that neither type of policy usually offers any cash-in value at any point.

What’s the difference between income protection vs critical illness?

There’s always a possibility that life could take an unexpected turn. If this should happen to you, both income protection and critical illness protection are designed to provide financial support when you need it most.

While income protection and critical illness cover offer complete flexibility over how you spend the money, each policy works in very different ways.

Income protection

Income protection insurance can provide a regular monthly payment (based on a proportion of your earned income – usually between 50-60%) if illness or injury prevents you from working and you lose your usual source of money. The payments usually continue until you’re able to return to work, your policy ends, you retire or you pass away, whichever comes first. Although some policies are available that only pay out for a certain length of time for each claim you make (for example 1 or 2 years). These are commonly referred to as ‘budget’ policies, or ‘limited payment’ policies.

Any monthly payments received via income protection are usually free from UK Income Tax or National Insurance contributions. However, this could change if UK Government tax rules are updated.

Like any insurance policy, income protection also comes with certain limitations and exclusions. For instance, income protection plans do not include unemployment cover and won’t pay out if the reason you’re unable to work is because you have become unemployed.

Here’s a rundown of the pros and cons of income protection insurance to help you compare with other types of available products.

Critical illness cover

When you take out life insurance you should have the option to add critical illness cover for an additional cost.

This cover typically pays a cash sum if you’re diagnosed with, or undergo treatment or surgery for, one of the specified critical illnesses listed in your policy. Some common illnesses and conditions covered by critical illness protection include:

• Cancer

• Heart attack

• Stroke

• Permanent disability

• Serious accidents

It is important to understand that some cancers are excluded from critical illness cover, and certain illnesses may require permanent symptoms for a claim. Critical illness cover is not the same as a savings or investment product and holds no cash value unless a claim is made.

Some life insurance policies, including those offered by LV=, also come with the option to add children’s critical illness cover for extra peace of mind.

The following information may help you decide if critical illness protection is important to you and your financial dependents.

Should I get income protection or critical illness cover?

The choice between income protection and critical illness cover often boils down to your personal circumstances and financial needs.

Income protection helps safeguard your income by providing regular monthly payments if you’re unable to work through illness or injury. This can be particularly beneficial if you don’t qualify for statutory sick pay (for example if you are self-employed) or would face a significant drop in earnings.

On the other hand, critical illness pays a one-off cash sum if you’re diagnosed with a serious or life-changing condition listed on your policy. The money can help cover the costs of treatment and recovery, pay the mortgage and bills, and cover everyday living expenses while you focus on getting better.

Below is a breakdown of income protection vs critical illness cover:

How much does income protection and critical illness cover pay out?

Both income protection insurance and critical illness cover pay out when you’re still alive. This gives you some financial breathing space when you need it most and are worth considering when planning your future finances.

A critical illness payout is typically linked to the severity of the illness or condition you’re diagnosed with. This could result in a full payout or a percentage of the full amount, as set out in the details of your policy. Some providers also give you the option to receive more than one payout.

Meanwhile, income protection pays an ongoing, regular benefit - typically between 50% to 60% of your income monthly before tax (although this varies with different providers). Some policies like those offered by LV= cover up to 60% of your earned income and include special features, such as guaranteed benefits and a match of sick pay schemes for certain jobs, at no extra cost.

Unsure whether income protection or critical illness cover is right for you?

Our partners at LifeSearch are available to offer you independent advice on which protection products will give you the financial security you need. Request a call back and speak to a professional adviser about your circumstances.

You can also get a quick income protection quote or a life insurance with critical illness quote today.

LV= does not offer income protection directly to customers and this is only available through a financial adviser.