When it comes to deciding how best to protect your finances, lifestyle and family from the risk of sickness or injury, it can be difficult to figure out which of the numerous insurance products and policies on offer best suit your needs.
Two products that seem similar, but are very different, are income protection (IP) and critical illness cover (CI). Whilst both policy types provide financial cover for illness or injury and the pay-out received can be used for whatever purpose the policyholder wishes, that is where the similarities end.
- Income protection pays out a monthly benefit, critical illness cover pays out a lump-sum benefit.
- Income protection will cover generally any medical condition that prevents you from working, whereas critical illness only covers specific illnesses and injuries.
- Critical illness cover pays out once when the policy ends, income protection policies can receive multiple claims.
- Income protection is tied to earnings whereas critical illness cover is not – this also means income protection’s cover is limited to 65% of pre-tax earnings, whilst critical illness cover can be any amount.
- Income protection is an individual plan. Critical illness cover can be taken out with life insurance and as a joint policy with your partner.
The two covers could complement each other, CI being there to support you financially in case a life-threatening illness or accident occurs, and IP to financially support you if you are unable to work for an extended period until you return to work or retire. One pays debts, while the other pays ongoing monthly bills. But being able to afford two types of cover is a luxury most cannot afford. Therefore, knowing the differences is of great importance.
Please be aware that there can be significant differences between the type of cover between not just each type of policy but each provider, so it is important not jump into any type of insurance without thoroughly considering what best fits your specific situation.
If you would like to discuss insurance and how it can benefit you and your family, please don’t hesitate in getting in touch with the First Financial Solutions team. You can call them on 01639 262222 or click here to contact them.