What type of cover is best for you?

5 min read


Life insurance can help to protect you and your family should the unthinkable happen. But are you clued up when it comes to the type of cover you need?

We can never be sure what's waiting for us round the next corner. It could be great: a new job, a new baby, or even a lottery win. But sometimes life throws the unthinkable at us, and that’s where life insurance – and the various covers available, including life cover, critical illness cover and income protection – can help. But do you know the difference?

Life cover is fairly straightforward – if you die it pays out a lump sum to your family. It's often used to cover the outstanding balance on a mortgage, but can also be used to protect other expenses.

“Where things can become more complicated is when looking at critical illness cover and income protection, and which is more suitable for you,” says Ross Jackson, Marketing Manager at Royal London. There's no easy answer as to which is best, as it depends on your personal circumstances, but the main differences are explained below.

Critical illness cover

Critical illness cover pays out a lump sum if you're diagnosed with one of a list of critical illnesses, and if you meet the definition for your plan. “Most providers will cover the same conditions but not all do, and the exact definitions of an illness may differ, so it's important that you understand what you're covered for and what you're not,” says Ross. If you're unsure, it's a good idea to seek impartial financial advice.

This type of insurance is often used to cover the outstanding balance on a mortgage should you develop a critical illness, but is also used to cover the cost of home modifications if you suffer a disability.

The vast majority of critical illness claims are for cancer, heart attacks and strokes.

Income protection

Income protection provides you with a monthly income if you become incapacitated through an illness or injury that might not be critical, but is severe enough to stop you from going to work for a long period of time.

“Most providers will use an ‘own occupation’ definition of incapacity, which means that the condition stops you from doing your own specific job, rather than any job,” explains Ross.

There's usually a deferred period to wait before your payments will start, which you'd normally select based on your employer’s sick pay arrangements. Typically, the deferred period can be anything from four to 52 weeks. Your payments will continue until you're well enough to return to work, or the term of your plan ends.

Most income protection claims are for mental disorders and musculoskeletal issues, such as back pain.

Key differences

  • Income protection provides a monthly income, whereas critical illness cover pays out a lump sum.
  • Critical illness covers specific illnesses, whereas income protection can cover any condition that prevents you from working.
  • You can make multiple claims on income protection, whereas critical illness cover pays out once and then the plan ends.
  • The amount of income protection cover you choose is based on your earnings, whereas critical illness cover isn't.
  • Critical illness cover can be taken out on a single life or joint life basis (e.g., with your partner), whereas income protection is single life only.

One type of cover isn't necessarily better than the other and what's best for you depends on your personal circumstances. “Ideally they complement each other, as one pays off your debts (critical illness) while the other pays your ongoing bills (income protection) – but not everyone can afford both,” says Ross.

If you need guidance, a professional financial adviser can help you decide which is best for you.