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Key takeaways
- Income protection pays a monthly income if you cannot work, while critical illness pays a lump sum on diagnosis of a listed condition
- Check what sick pay, savings and benefits you already have
- Choose the deferred period carefully, because it affects the price
- Definitions of conditions and "unable to work" matter at claim time
- Be honest on the application and compare policies carefully
If you became too ill or injured to work, how long could you pay your bills? Most people rely on sick pay, savings or benefits for a time, but these may not last. Income protection and critical illness cover are two types of insurance designed to fill that gap, and they work very differently. This guide compares them, so you can see which, if either, suits your situation.
The quick comparison
| Income protection | Critical illness cover | |
|---|---|---|
| What it pays | A regular monthly income | A one-off lump sum |
| When it pays | When you cannot work because of illness or injury | When you are diagnosed with a listed serious condition |
| Typical conditions covered | Almost any illness or injury that stops you working, subject to policy terms | A defined list, such as certain cancers, heart attack and stroke |
| How long it pays | Until you return to work, the policy ends or retirement, depending on the policy | Once only |
| Cost | Depends on occupation, health and benefit | Depends on age, health, term and conditions covered |
Income protection
How it works
You choose a monthly benefit, usually up to about 50 to 70% of your gross income, and a deferred period, which is how long you wait after you stop working before payments begin. If you are off sick, the policy pays the benefit until you can work again, the policy term ends or you reach the end of the cover. The benefit is typically paid tax-free if you pay the premiums yourself.
Deferred periods
Common deferred periods are 4, 8, 13, 26 or 52 weeks. A longer deferred period makes the premium cheaper. Match it to how long your employer pays sick pay and how long your savings would last. For example, if your employer pays full sick pay for 6 months, a 26-week deferral may work.
Types of policy
- Long-term income protection: pays until you recover, retire or the policy ends. It is generally the most valuable but cost more.
- Short-term income protection: pays for a limited period, such as one or two years. It is cheaper but ends sooner.
- Own occupation or suited occupation: these definitions decide when you can claim. "Own occupation" is generally the most generous, because it covers being unable to do your own job. Others may require you to be unable to do any similar work. The definition matters at claim time.
Who might need it?
It can be especially valuable for self-employed people, who often have no sick pay, and for anyone whose household depends on their income. It might be less necessary if you have generous employer sick pay, substantial savings or a partner who earns enough to cover costs.
Critical illness cover
How it works
You choose a sum insured and a term. If you are diagnosed with a covered condition that meets the policy's definition during the term, the insurer pays the lump sum. You can use it for any purpose, such as paying off a mortgage, adapting your home or replacing lost earnings.
What is covered
Policies list specific conditions, and the exact definition matters. Common ones include cancer (some types), heart attack, stroke, multiple sclerosis and major organ transplants. Policies may not cover early-stage cancers or less severe conditions, or may pay a smaller sum. The Association of British Insurers publishes standard definitions for core conditions, but insurers can have their own.
Limits
- You must meet the exact definition. A serious illness not on the list may not be paid.
- Cover usually requires a waiting or survival period after diagnosis.
- It pays once, so a second illness may not be covered.
- Pre-existing conditions can be excluded.
- It is more expensive for older people, smokers and those with health conditions.
Critical illness is often sold with life insurance, either as a combined policy or an add-on. See life insurance explained.
What help do you already have?
Before buying, check what you already have:
- Employer sick pay, which varies from statutory sick pay only to full pay for months
- Statutory Sick Pay, a modest weekly amount paid by your employer for a limited period if you qualify. See GOV.UK for the current rate.
- Employer benefits, such as group income protection or critical illness cover
- Benefits, such as Universal Credit, Employment and Support Allowance or Personal Independence Payment, which have eligibility rules and can be lower than your normal income
- Savings and an emergency fund. See how to build an emergency fund.
- Mortgage payment protection or other insurance
Compare your essential monthly costs with what you would have to live on to see the shortfall. Our budget planner can help.
What affects the price?
Premiums depend on your age, health, smoking status, occupation, the benefit amount, the deferred period and, for critical illness, the conditions covered. Premiums may be guaranteed or reviewable. Guaranteed premiums stay the same, while reviewable ones can increase.
Exclusions to watch for
- Pre-existing medical conditions
- Claims arising from certain hazardous activities
- Mental health conditions, which some policies limit
- Conditions diagnosed before the policy began
- Self-inflicted injuries
- Claims during the early period of the policy
Read the policy documents carefully.
How to choose
- Work out your essential monthly costs.
- List what income you would have if you could not work.
- Decide which risk worries you most: a long period of lower income (income protection), or a big one-off cost (critical illness).
- Get quotes from several insurers or through an adviser.
- Check the definitions, exclusions and claim rules, not only the price.
- Be completely honest on the application.
- Review the cover when your circumstances change.
Because the products are complex, many people use an authorised adviser or broker. Ask how they are paid.
Making a claim
Contact the insurer as soon as possible, gather medical evidence, and keep records. See how to make an insurance claim. If a claim is declined, you can complain to the insurer and then to the Financial Ombudsman Service.
Frequently asked questions
Is income protection worth it?
Can I get critical illness cover with a pre-existing condition?
Do the payments count as taxable income?
Do I need both?
Sources and further reading
- Income protection — MoneyHelper
- Statutory Sick Pay — GOV.UK
- Choosing the right insurance — Association of British Insurers
This page provides general information only. It is not personalised financial, legal or tax advice, and rules and figures can change. Your situation is unique — please check official sources such as GOV.UK and MoneyHelper, and speak to a qualified, FCA-authorised adviser before making important decisions about your money.
Written by
MoneyBrink Editorial Team — Editorial team
The MoneyBrink Editorial Team researches, writes and reviews every guide on this site. We work from official UK sources such as GOV.UK, the Financial Conduct Authority, MoneyHelper and the Money and Pensions Service, explain things in plain English, and update articles when the rules change. We do not sell financial products and we do not give personal advice.
Read how we research and check our guides in our editorial policy.
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