Difference Between Critical Illness Cover and Income Protection?

What’s The Difference Between Critical Illness Cover and Income Protection?

One of the most common questions I get is: “What is the difference between Critical Illness Cover and Income Protection?” This post provides a brief explanation of how these products are designed. And how they protect you and your family. This will then reveal the differences between the two.

There are similarities between the two types of policy. Both are forms of insurance. Both will pay you money if you are unwell. However, there are important differences.

What is Critical Illness Cover?

Critical Illness Cover pays out a lump sum on diagnosis of an illness or condition. These conditions are defined in the policy document. The most common conditions are cancer, heart attack and stroke. Most people who take out critical illness policies use the proceeds to repay debt, like a mortgage. Another common use is to make adjustments to their accommodation or lifestyle. The chart below provides a list of some illnesses covered by Critical Illness Plans:

Conditions covered by a critical illness plan.

For example, if you have a mortgage and are seriously ill the monthly repayments may be difficult to maintain. By having a critical illness plan for the loan amount the debt would be repaid in full. This leaves you able to focus on your recovery and not worrying about losing your home.

What is Income Protection?

Income protection policies provide a regular income to you if you are unable to work due to accident or illness. Payment continues until you are well enough to return to work, you reach an agreed age (e.g. retirement) or you die.

Because Income protection plans pay a percentage of your income when you are unable to work, what you do for a living is very important. For example, office workers are relatively low risk but builders and farmers are higher risk.

The application process for income protection plans is usually quite strict. This is because the insurer could potentially be agreeing to pay out a large sum of money every year under the plan. If a person was insured for US$50,000 a year at the age of 30 and was unable to work from age 31 to his retirement age at 65, the total paid by the insurer would be $1,700,000. It could be more if the amount increased in line with inflation.

I am often asked if these plans cover unemployment, the answer is no, they do not.

Summary of Differences Between Critical Illness Cover and Income Protections Plans

comparison of income protection and critical illness cover plans

To discuss your financial planning needs, please contact me on 050 594 5217 (what’s app is available) or arrange a meeting via ZOOM for free by clicking here.


Stuart Porter - Expat Financial Advisor UAE
Get in Touch