Critical Illness Cover vs Income Protection
When it comes to protecting your mortgage, there are various options available to you but each one comes with varying features and different pros and cons. In this article, the differences between Critical illness cover and Income protection will be broken down so you have a better idea as to how each one protects you.
Firstly, Critical illness provides you with a tax free lump sum in the event of you getting one of the illnesses listed on the policy whereas Income protection pays a percentage of your income should you find yourself unable to work due to an accident or illness. These two often complement one another due to the different ways they are both paid and the different things they cover you for. In some cases, both policies may pay out at the same time; if the individual gets an illness and is also unable to work due to the illness.
There are some key differences between the two policies:
Claims under critical illness cover are paid as a tax free lump sum and provide a cash reserve to be drawn upon whenever needed whereas income protection pays out a monthly income until the individual returns to work.
Critical illness cover policies have a list of illnesses that the policy will cover them for if the individual gets any of them but an income protection policy will cover you when any illness or injury stops you from being able to work. There are no conditions for the income protection other than the fact that you have to be signed off work due to illness or injury.
Critical illness cover is paid for the full amount assured and isn’t subject to earnings. Income protection can pay out up to circa 60% of the policy holder’s monthly income so there are limits to how much cover you can benefit from.
Under a critical illness policy, you can only claim once on it and then the policy will expire but with an income protection policy, you can claim as many times as needed during the life of the policy.
Both policies have good pay-out ratios with insurers paying out on around 93% of critical illness policy claims and on 95% of income protection claims according to Legal & General claim statistics in 2018.
If you are interested in finding out more about either or both of these types of cover, it is crucial that you speak to an advisor who knows how each works and the differences between individual insurers products.
Post courtesy of What Mortgage.