Looking beyond life cover: what if your income stops but you don't?

5 min read

Faith Archer
Faith Archer

Personal Finance Journalist


Life cover pays out if the worst happens, and you are no longer around to support your loved ones. But what happens to the bills if you get ill or otherwise can’t work?

If you are concerned about supporting yourself and your family if you get ill or are unable to work, there are types of insurance that could help. Protection policies may only cost a few pounds a month but can make a massive difference.

Options such a critical illness cover and income protection insurance, also known as permanent health insurance, can ease the financial burden at a difficult time.


Critical illness cover

Critical illness insurance pays out a tax-free lump sum if you are diagnosed with certain serious illnesses or disabilities. The money could help clear, for example, your mortgage, pay bills, meet medical expenses or adapt your home.

You can claim if you suffer from one of the conditions listed on your policy. This may include a heart attack, stroke, cancer, multiple sclerosis or Parkinson’s disease. It’s important you check which conditions your insurer covers before you take out a policy.

However, critical illness cover won’t pay out if you can’t work due to an illness that isn’t sufficiently serious, or isn’t listed on the conditions covered by your policy. Some policies may not cover illnesses which you or a member of your family have had before, known as ‘pre-existing conditions’. Or if they do then your insurer may charge extra.

You could receive a large lump sum for your payout, if you choose to insure for a large amount. However, the money could still run out if you are unable to work for a long time or never work again. Once you have claimed, the policy finishes – even if you suffer from another of the conditions or disabilities afterwards.

Read the difference between life insurance and critical illness cover


Income protection insurance

Meanwhile, income protection insurance rides to the rescue if you are unable to work due to illness or injury. Once you have been off work for a certain amount of time, usually three or six months. An income protection policy will typically pay out a regular income until you retire or return to work.

The tax-free cash could top up limited state benefits, so you can still afford your essential expenses.

Income protection has the advantage in that it doesn’t restrict the illnesses and injuries which you can claim for to a specific list. This means you could claim for the two most common medical reasons for being off work (mental illness and cancer)*, which, typically aren’t covered by critical illness cover. 


Weighing up income protection and critical illness policies

Income protection and critical illness policies cover different risks and provide different types of financial help, so you may want to consider a mix of both, in addition to any life cover.

Income protection and critical illness cover can be difficult to compare, so it makes sense to seek professional advice from a financial adviser.

A financial adviser can help explain what’s covered and what’s not, and what would suit your circumstances. For example, choosing an income protection policy that insures your ‘own occupation’, means you will get a payout if illness prevents you from doing your own job, rather than any work at all.

The costs for protection policies are driven mainly by the amount you would receive if you made a claim, the length of the policy, and by your age, health, occupation and whether you smoke. You will also need to pay extra if you want the benefits, whether as income or a lump sum, to increase in future as living costs rise.

With income protection, the longer you are willing to wait until payments start, known as the ‘deferred period’, the cheaper your premiums will be. You may be able to choose a policy that starts later, if for example you have savings or employee benefits such as sick pay that could bridge the gap.

An adviser can help with the tricky task of working out how much cover you might need, while keeping the premiums affordable.

Life cover can provide peace of mind if you are no longer around to provide for your family, but critical illness cover and income protection policies can be financial lifesavers if you have a serious illness or are injured and unable to work.

*£575m paid in protection claims 2019


Faith Archer is a freelance personal finance journalist and money blogger at Much More With Less. Previously Deputy Personal Finance Editor at The Daily Telegraph. She has also written for publications including The Sunday Times, The Financial Times, Mirror Online and the MoneyHelper.