Guide to Health Insurance, Income Protection and Critical Illness Cover

In the UK, there are three types of insurance that are commonly misunderstood by consumers: health insurance, income protection and critical illness cover. For insurance experts, these three products are very different. But for newbies to the insurance market, understanding the differences between them can be a minefield. Here, we distinguish between health insurance, income protection and critical illness cover to help people choose a protection policy that is right for them.

Critical Illness Cover

Critical illness cover is designed to pay a tax free lump sum on the diagnosis of a pre-defined serious illness. All critical illness policies should cover seven core conditions. These are cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. Critical illness policies will not pay out for mild conditions.

Critical illness will pay you a lump sum on diagnosis, and you can choose to use the money for whatever you need. Many people use it to pay off their mortgage if they cannot work through the illness, to pay for private therapeutic care or to make modifications to the home. The money is designed to provide you with a financial cushion to make the recovery process a little bit easier.

The premiums of critical illness cover vary depending on the size of the lump sum you want to receive, how many conditions you want to be covered for, and personal details like your health and your smoker status. Critical illness cover can be sold as a standalone product, or bought as an addition to your life insurance. By combining a critical illness benefit with a life insurance policy, you will be ensured a lump sum either on death OR on the diagnosis of a predefined critical illness.


For single people with no dependents, critical illness cover that pays off the mortgage means you have fewer bills or a lump sum to play with if you are very unwell.

You will be under no pressure to get back to work because you will be financially supported

You can use your critical illness money for anything you like


Benefits are payable only to survivors, but some insurance companies will pay as long as you survive a critical illness for a minimum of 15 days.

Once the money runs out, you will not be getting any more

Critical illness cover will only pay out for predefined illnesses, even if you cannot work for another milder condition

Income Protection Insurance

Income protection is a policy designed to replace part of your monthly income if you are unable to work through accident, sickness or unemployment. Rather than paying you a lump sum, income protection will give you a monthly income to live off.

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Short term policies will only pay out for a maximum of 12 months, but long term policies can pay out until retirement. The money that you get paid is usually a percentage of your gross salary, up to around 60%. Income protection benefit can be used to meet general lifestyle costs, or it can be tied to a particular debt like your mortgage or credit card repayments.

The premiums of income protection will vary depending on your age, your smoking status and your medical history. Long term policies are usually more expensive than short term policies because they pay out for longer. A policy that pays out until retirement will cost more than a policy that pays out for five years.

Before buying an income protection policy, check with your employer about other benefits you may be eligible for. By law, an employer must pay most employees statutory sick pay for up to 28 weeks. If you choose an income protection policy that kicks in after these 28 days, your premiums will be lower.

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