What is critical illness cover and how does it differ from life insurance?

Life insurance is quite simple to understand. If you pass away, your life insurance will pay out a lump sum to your family. There is a clause in most life insurance policies that if you become terminally ill, you can receive the payout before death.

But unfortunately we are more likely to develop a serious illness in our lives than die prematurely. Critical illness is a newer type of policy, while life insurance has been around for hundreds of years. Critical illness cover pays out for serious illnesses that are not necessarily terminal, such as cancer, heart attack, stroke, total permanent disability, blindness, deafness. Many different illnesses and conditions are covered.

There are a lot of providers out there and each has different specifics to their policies. Critical illness cover is more expensive than life insurance – because sadly many of us will develop a serious illness like cancer in our lives.

So if the cost means you can’t cover a huge amount, like a £300,000 mortgage, remember that you don’t have to take an all-or-nothing approach. You can reduce the level of cover.
We would explore with you the difference between a life-changing amount of money and a sum that would see you through a time when you might not be able to work.

If you had a stroke or cancer and were off work for a year, imagine what a relief it would be not to have to worry about money. Just a £20,000 plan could mean the world of difference.

What is income protection?

Income protection is a monthly payment plan where instead of a predetermined lump sum, it gives you a monthly income. It would cover any illness if you don’t have any pre-existing health conditions and will replace your income if you’re unable to work due to accident, sickness, illness or injury.

It’s particularly important for people that are self-employed, who don’t receive any sick pay if they can’t work. You’d have bills to pay: mortgage, gas, electric, water, food, so income protection is ideal – every single month, you would get a predetermined amount. And your adviser will work with you to understand the payment amount you would need to survive.

There are two different types of income protection plans. A full term plan covers you right up to retirement, while a short term plan is a less costly option that might last for a year, two years or five years. Most people are able to return to work within two years, even after very serious illnesses or injuries.

What is family income benefit?

Family income benefit is a type of life insurance or critical illness cover that pays out on a monthly basis instead of a lump sum. We advise that family income benefit should protect the family, not the mortgage.

The idea of family income benefit is to replace monthly income if the main earner were to pass away or become critically ill. Instead of paying the mortgage off, the policy would pay a monthly income to cover the mortgage, childcare and living costs for the family.

Can you combine the different types of protection?

It’s very common to combine life and critical illness cover with a single provider. You can also have a ‘menu plan,’ allowing you to have some life insurance, some critical illness and some income protection all under one roof. The premiums and the policies are all contained in one plan – but separate policies.