While we all dream of winning the lottery and being financially secure for life, the reality is that most of us rely on regular income from our jobs to maintain our lifestyle, pay our bills and buy nice things. To put it lightly, if we were to lose our regular income, most of us would find ourselves in a bit of a pickle!

The risk of this might actually be higher than you think, as the stats tell us 29% of men and 38% of women aged 25 will have to take a two-month break from work due to illness or injury by the time they are 65 (1) (and that’s for people who don’t smoke!).

When something like this is worrying us, the temptation is often to try and squash or ignore the niggling feeling - if you pretend it isn't there, then perhaps it will go away. Sound familiar? Deep down we all know that playing ostrich doesn’t really work, and it is only by facing the source of your worry head on that you can achieve peace of mind. This certainly applies to worries about losing income. While it isn’t nice to think about, if you take the time to reflect honestly on what would happen if you could no longer work, then you are in a good position to do something about it.

That ‘something’ could be to purchase an insurance policy that will look after you and your family financially if you were to fall ill, keeping your life running as smoothly as possible. Income protection insurance and critical illness insurance are two types of policy that provide this safety net.

This guide will explore these two protection options and help you choose the right one (or ones!), so you can feel confident that you’re making the right decision for you and your family. No ostriches here. 

New to the world of income and illness insurance? Have a look at our guides on critical illness cover and income protection insurance to get a more detailed overview of what they are, how they work, and why you might want to purchase a policy.

What is critical illness cover, and do I need it? 

Critical illness cover is an insurance policy that pays you a lump sum of (tax-free) money if you fall ill with one of a number of specified serious illnesses. The serious illnesses which qualify for a payout are defined by the insurer when you purchase a policy. The cost of critical illness cover depends greatly on your health, age, job, and lifestyle, but it can be life-changing if you need to claim and provide serious peace of mind, which we think makes it priceless. 

If you have a large mortgage debt that you wouldn't be able to pay without your income, critical illness cover could be a good option for you. The payout can be used to cover the mortgage, or, in fact, for anything else you choose. Cancer is the biggest reason for claim(2), so sometimes people decide to use the payout to get specialist private medical treatment if they don’t have private medical insurance.

What is income protection insurance, and do I need it?

Unlike critical illness cover, income protection insurance doesn’t pay out a single lump sum of money, rather it is designed to replace your regular income if you are unable to work. Despite being less well known, income protection policies are more likely to pay out than critical illness policies, because you don’t have to develop a specified illness to qualify for a payout, you just need to be unable to work because of an accident or illness. This could be for nearly any reason and includes things like back problems and stress, which are the two most common causes of claim(2). Income protection policies are designed to pay up to around 70% of your wages each month until you have recovered, and many insurers also offer free services such as counselling and rehabilitation support to enable a speedy recovery.

As well as more expensive income protection plans that will pay out all the way until retirement (if needed), there are also budget policies available, which will cover you for a shorter length of time, paying out a benefit for usually around one or two years. This type of policy can come as cheap as £10 a month! 

If you would like to find out how much an insurance policy would cost you, you can call the team at Cavendish Online on 01392 241 850 to speak to one of our insurance specialists and compare your options.

Income protection insurance or critical illness cover - which one do I need?

In an ideal world, you would get both income protection and critical illness cover. This would mean that if, for example, you got cancer (which we hope you don’t!) and as a result could no longer work, income protection insurance would pay you a monthly income replacement to cover your usual living costs. You would then also receive a lump-sum payment from your critical illness policy, which you could use to pay for specialist medical treatment or to pay off your mortgage. However, not everybody’s budget will allow for two insurance products, so quite often people choose one or the other. 

Critical illness and income protection insurance are both very valuable products, and which is best suited to you depends on your individual circumstances and insurance needs. To help you make the right choice for you and your family, you can call 01392 241 850 to speak to one of our insurance specialists.

Whichever you decide to purchase, it is so important to be fully honest when you apply for a policy, even if you have a pre-existing medical condition. While the vast, vast majority of claims do result in a payout, those that don’t are generally due to people not being honest in their policy application.

And just so you know, these policies generally won’t pay out if you are unable to work for non-medical reasons, such as redundancy or if you have become unemployed for any other reason. There are other insurance policies that provide this type of cover, such as accident, sickness and unemployment cover.

How can I buy the right insurance policy for me?

At Cavendish Online, we can help you work out which type of insurance and which insurer is best suited to you. Call 01392 241 850 to speak to one of our insurance experts, who can guide you through the process and support you in choosing the best cover for you and your family.

Article links: 

1. https://www.lv.com/adviser/risk-reality-calculator

2. https://www.abi.org.uk/news/news-articles/2020/05/record-98.3-of-protection-claims-paid-out-in-2019/#:~:text=Cancer%20is%20the%20biggest%20single,mental%20health%20and%20then%20cancer

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