Difference between Income Protection and Critical Insurance

The term critical insurance and income protection insurance have been explicitly used for years to describe an individual dilemma. The decision how to protect your lifestyle and finances is a difficult proposition; after all there are numerous policies to choose from. However, it should be noted there are several differences between each policy type so; you need to look into various factors before making the decision.

Let’s start with the terminology

Income Protection Insurance- This type of policy protects you from serious risk or injury. The policy payout is 65 percent of gross income if due to some cause you are unable to work. In case, you choose long term policy it will provide you protection till the time of retirement, also multiple claims can be made in the same policy. One of the major advantages is it protects you from all major illness that hampers you from working.

Critical Illness Cover- Illness can be stressful for anyone of us. A lot of anxiety plagues our thoughts as we want safe and most importantly productive life. Critical Illness cover is designed to protect you if you were to suffer from any serious illness as mentioned in the policy document. The policy is not tied to your income so; you can take the amount of cover that you like. It is similar to life insurance, the only major difference between critical illness cover and life insurance is, this plan pays you on basis of illness or injury, while the latter one pay for the death. The major reasons for claiming critical illness can be

·        Stroke

·        Heart Attack

·        Cancer

·        Paralysis

·        Organ Transplant

·        Blindness

·        Disability

·        A variety of lesser known diseases

Major Similarities between the two policies

·        Both the type of insurance cover provide financial cover for serious illness or injury

·        There is no restriction as to how to use the payout

·        Both the policies have guaranteed premium

 

Major differences between the policies

Standalone Policy

Income Protection is a standalone policy. It is not linked to your mortgage policy although it can be used as payment protection policy. Critical Illness cover can be standalone (single) policy or it can be blended with life insurance or mortgage protection policy. For instance, if an individual takes a mortgage protection policy along with that he is also proffered critical illness cover as a rider.  This ultimately proves advantageous. So, if you want to attain cheap critical illness quotes, opt for a policy when you are relatively young. 

Type of Cover

Critical Illness cover will pay you a Lumpsum amount on diagnosis of serious illness as mentioned above. Every company provides different cover for so; you should always check whether you are getting the best cover or not. In the event of a claim, you can use the amount to clear off your mortgage, loans or fund necessary treatment or to cover your daily paraphernalia expenses, if you are unable to work for a prolonged period of time.

This policy is quite advantageous if

·        The illness is for a short period , and you are able to work soon after that

·        You need money to pay the loan

If you are unable to work for a prolonged period, the Lumpsum amount won’t last for a longer period.

Income Protection provides you protection in the event you are unable to work ever again. It covers injury or illness that makes you feel like a little helpless bird. This policy will pay you right until the retirement or if ever you are unable to work ever again. At times, your employer may pay you sick pay, but there is no guarantee. Hence; it is vital to obtain income protection cover.

The cover comes into limelight when you are out of work for 8, 13, 26 or 52 weeks. The maximum amount of a claim that you can make is 75 percent of gross salary.

Let’s summarize the things

·        Income Protection Cover is tied to earnings, while critical illness cover is like a life insurance

·        Critical Illness Cover provides cover for a specific illness, while IPC (*Income Protection Cover) covers every condition that prevents you from working

·        Multiple claims can be made on IPC, while a policyholder can make a single claim on CIC.

·        Any amount can be insured for CIC, whilst there is a cap on IP, 65 percent of gross earnings.

·        IPC is a standalone policy, whilst critical illness cover can be taken out as a joint policy with your spouse or children.

·        Lastly, Income protection cover pays you income and not a Lumpsum amount when you are unable to work, whilst CIC provides a Lumpsum amount on diagnosis of serious illness.

 

Next Step

If you want to discuss your policy options, you can adopt the following two methods

·        Obtain critical illness quotes income protection quotes on online bases

·        Consult a financial advisor

Whichever way you choose, look-in for advisors who have a solid understanding of facts and can help you make the best policy decision.