To an extent, whether or not IP is cheaper depends on the individual circumstances and how the two are compared, but if we look at a quote for a 35-year old covering £250,000 over 30 years CI would cost in the region of £90 per month, while a IP policy could potentially pay over £300,000 as an income if they could never return to work would for around £30 per month.
3. Scope of cover
In theory IP covers all medical conditions. Unlike CI there is no ‘list’ of insured illnesses and so it tends not to matter what the illness or condition is. The important factor is simply whether or not you can work.
Tom Conner, Director at Drewberry Insurance said: “The problem with CI is that the three main causes for claims represent only 30% of IP claims, which suggests that the cover provided by IP is much wider.”
This view is echoed by Peter Chadborn at Plan Money who uses the following chart with clients:
| Q. Why do I need Income Protection if I’ve got Critical Illness cover? |
| Most common reasons for IP claims | Approximate % of claims made | Covered under CI? |
| Accident | 20% | No |
| Muscular Skeletal | 20% | No |
| Psychological (stress/depression) | 20% | No |
| Cancer | 15% | Yes |
| A. Because these areas of cover complement each other, not replace. |
4. Windfall payments
There are some so-called ‘windfall’ CI payments where people are paid a huge lump sum having already returned to work. On the flip side half of all heart attacks are repeat attacks where most people return to work within 6 months of the first incident due to financial pressures.
Does IP help here? If the policyholder returns to work within the deferred period the policy would pay nothing, where as CI would likely have paid out upon diagnosis of the heart attack, removing the financial pressure to return to work and reducing the risk of a second heart attack.
Mark Jones at LV argues: “The cover that someone needs will very much depend on their individual financial and personal circumstances. Speaking to advisers it’s clear that some clients think it’s a case of ‘either or’ when it comes to income protection and critical illness cover, however there is a significant difference between the two products.
“Critical illness cover will pay out if a client suffers a serious illness; if it’s an accelerated product it also pays out on death. If a client is unable to work but not as a result of a critical illness e.g. they break their leg or suffer a back injury, without an income protection policy in place, they could find themselves in a financially vulnerable position.”
5. Dividends, ongoing income and other benefits
People who pay themselves by dividends can sometimes struggle to get IP. Likewise those who continue to receive an income even though they cannot work, such as renewal commission or other benefits, may struggle to qualify for benefits.
