Is critical illness cover the same as income protection?

If you became unwell and couldn’t work, how would you pay for your daily expenses? What if you became critically ill — would you be able to cover your ongoing medical costs? There’s insurance that may protect you in each of these scenarios, but they’re two different kinds: income protection and critical illness cover. There is also TPD insurance,  which covers you for any injury or illness that has made you “totally and permanently disabled” and stopped you from working for any period of time- we’ll explore this type of cover in a different article.

Let’s take a look at the differences so you know what you may receive with each.

Income protection cover

Income protection can provide a regular monthly payment if you’re unable to work due to sickness or injury. It’s peace of mind for you and your family — you may not need to worry about how to pay for groceries or cover rent or mortgage repayments while you’re out of action, which means you can focus on getting back to full health. Your payment amount and length of cover will depend on your circumstances and policy. Generally, the maximum you can receive is 70% of your salary, and benefit payment periods are either 1, 2 or 5 years. Income protection policies include a waiting period; you’ll have to wait a specified period after your ‘date of disablement’ before you can start receiving payments. As income protection directly relates to your income, your premiums might be tax deductible.

Keep in mind that income protection payments may stop if you no longer meet the definition of total or partial disability, or if you reach a certain age (such as 65 or 60 for police officers).

Critical illness cover

Critical illness insurance (sometimes known as Trauma insurance) is designed to provide financial cover if you become critically ill or injured and need extensive medical treatment to recover. When compared to income protection, the first difference we see is the severity of illness. A critical illness policy will specify which illnesses and injuries are covered, and the requisite level of severity. The second difference is the way you’re paid — you’ll receive a one-off lump sum payment instead of monthly payments. Critical illness cover could be bundled up with your Life (or ‘Death’) cover . However, unlike income protection, critical illness premiums are not tax deductible since this cover doesn’t relate to your salary.

What’s right for you?

Both these insurance types are valuable, and it’s not uncommon for people to hold policies for each. It comes down to your individual circumstances. Everyone’s situation is unique, as is their need for insurance. Feel free to contact me if you need help assessing your insurance options.