September 2007

Q & A - WHAT'S THE DIFFERENCE BETWEEN CRITICAL ILLNESS INSURANCE AND INCOME PROTECTION INSURANCE?

Q. What's the difference between Critical Illness insurance and Income Protection insurance?

A. Critical Illness cover (CIC) is designed to pay out a lump sum on the diagnoses of certain specified illnesses, for example cancer, a heart attack or stroke. Having enough CIC to cover the mortgage for example could be ideal because if you suffered such a condition, a pay out could mean being free to give up a stressful job which if continued, would only make things worse. If you have an existing Critical Illness policy that started several years ago, it is probably worth hanging on to. Generally premiums have gone up steeply in recent years as insurance companies have had to pay more claims. In addition the definitions of what constitutes a claim have been tightened up in recent times.

The other major ill health protection is Income Protection (IP). For the breadwinner this is often more appropriate than CIC in that you can insure your income against being unable to work irrespective of the health reason that is stopping you.

Income Protection insurance does exactly that, but what particular policy will be right for you? For example, does the policy pay out if you were unable to follow your own occupation, but still able to fulfil a less demanding role? What is the insurer's pedigree in income protection? Does it pay its claims? Are the premiums guaranteed never to increase or are they reviewable?

This is one area where taking advice can pay dividends in the long run, because as with many things in life cheapest does not necessarily mean "best".