Written by Sarah Fox

In an ideal world we would all want the best protection possible, not be having an either/or conversation, but due to circumstances, cost etc. very often this can be the case.

Here I shall look at income protection and critical illness cover.

Both of these policies can be incredibly valuable to have if you become ill, so that you can be safe in the knowledge you have financial support.

As we know there are times when people cannot afford to have both.

I would like all our clients to have both, no matter the cost. However, in reality many simply do not have the spare funds.

I believe many clients see the value of income protection and critical illness cover, but sometimes they are not given top priority when it comes to the household budget.

Many clients will prioritise Netflix, Sky TV, a coffee on the way to work each day, or a night out with friends.

We all need to live a life we enjoy, but these insurances are also important, even if only a small amount is secured. Something is better than nothing at all.

When we look at the cost of these insurances a lot of people tend to want to choose one rather than both. It's about getting a balance of spending your money on things that you can enjoy right now, and insurance to help you if you need it.

So which to choose? Income protection or critical illness cover?

What is income protection?

Income protection is a brilliant policy that pays out a monthly income if you are ill and unable to work.

Key parts to a plan:

• Monthly benefit - the amount you are insured for, usually based on up to 60-65% of your gross earnings
• Policy Term - how long the policy lasts for, usually your anticipated retirement age, maybe age 68 or 70.
• Deferred period - how long you wait from becoming ill and unable to work, before the insurer gives you financial support e.g. 4, 8, 13, 26, 52 weeks
• Claim length - this is the amount of a time a successful claim can pay for, it's usually all the way to the policy end date, 5 years, 2 years or 1 year per claim.
• RPI linked - this means that the policy is going to increase each year to keeps its value compared to inflation increases.

Income protection can be adapted in a lot of ways.

I like to recommend that you go for the best cover possible with all the ‘bells & whistles', then if the price doesn't feel right you can tweak bits to make it suit your budget.

Personally, I'm really passionate about income protection because it replaces the most important asset you have, your income, if you are not able to work. If you are signed off and can no longer work, how do you save for retirement, save for a holiday, pay the bills, adapt your home?

What is critical illness cover?

Critical illness cover tends to be more popular when I initially speak to clients because it covers specific lists of conditions that people can claim on and are often the things that we worry about, for example: Cancer, heart attack, stroke etc.

With critical illness cover a claim can be considered if you are diagnosed with one of the listed conditions that the insurer offers cover for.

When it comes to choosing critical illness cover the options can often feel endless. Ultimately, if you get a critical illness policy that covers you for cancer, heart attack, stroke and multiple sclerosis, then you are covering the main conditions that are claimed on with this policy type. But we can look at providers across the Whole of Market to get the cover that's right for you.

As with Income Protection, there is of course jargon to know! So here's some of the key things you need to know:

• Sum assured - this is how much you are insured for, so you might choose 1 year's net income, or more if affordable.
• Policy term - this is how long the policy lasts for, ideally to your anticipated retirement age
• Core Cover or Essentials Plan - this is the basic level of critical illness cover, you are insured for most of the key conditions that the insurer offers.
• Enhanced or Select Critical Illness Cover - this is the all singing all dancing version, covering you for more conditions.
• Partial payments - this is where the insurer doesn't pay the full sum of the insurance to you, but part of it because you've experienced a serious condition but not at the severity for a full pay out
• Children's cover - insurers potentially allow you to include critical illness cover for your children, so that if they do become critically ill you can have funds to take care of them and possibly take a leave of absence from work.

With critical illness cover it's important to know that most insurers change their policies every now and then, but this change is not usually given to existing clients. So, if you take out the insurance today you agree to the insurer's critical illness contract as it is now. If they change their policy and add or remove conditions in the future, this will not usually be reflected in the insurance that you have.

So, do you choose Income Protection and / or Critical Illness - Which is better?

Unfortunately, there is no black and white answer to this. I personally feel that income protection is essential to most people that are working. I think critical illness is a policy that a lot of people are likely to claim on at some stage in their life. But the choice must come down to you and what you feel is going to put your mind at ease.

You could secure Income Protection with a small amount of Critical Illness cover and then maybe add on additional Critical Illness Cover when its affordable. However, the younger you are with less medical information to disclose, the more cost effective a cover will be.

In summary:

Income protection - pays out if you are signed off sick by a qualified medical professional. Payouts are made monthly over a long period of time. If you are able to return to work the policy will stop paying and you will still be insured going forward.

Critical illness cover - pays out if you are diagnosed with one of a set number of conditions at a severity specified by the insurer. The payout is usually one large lump sum of money and the policy then ends.

Ultimately if you can afford it, it is very useful to have income protection and critical illness cover. They do different things.

Your health, travel, occupation and sports can really influence whether income protection or critical illness cover has the greater value to you. Sometimes your circumstances might lead to premium increases or exclusions on one of the policy types, but then the other might be offered at standard terms.

It really is a complex process to find the right income protection and critical illness policy for you. So as we do this day in / day out, if you wish to consider cover please get in touch with us at Merrigan-Reis, your local Bristol Insurance Advisers based in Portishead and supporting clients nationwide.