Many clients think it is a case of either/or when it comes to income protection and critical illness cover, according to Chris McNab, critical illness product manager at LV.
However Mr McNab says there is a significant difference between income protection and critical illness cover, and the two products can work in harmony as the twin pillars of protection.
Mr McNab says income protection is an insurance policy that provides clients with a regular income if they are unable to work due to accident or sickness.
This product enables a client to protect themselves and their family against loss of income which means they won’t have to rely on their savings, state benefits or statutory sick pay.
If a client is unable to work but not as a result of a critical illness, without an income protection policy in place, Mr McNab warns they could find themselves in a financially vulnerable position.
Mr McNab says industry figures show that life cover sales surpass those of income protection and critical illness.
He says this is no surprise given that these products are regularly purchased in conjunction with another financial product such as a mortgage.
However, Mr McNab says statistically a client is more likely to suffer an illness which prevents them from working for two months or more than to die before they retire.
But Alan Lakey, director of CIExpert, says there is no realistic alternative if the aim is to receive a capital sum for mortgage repayment or director protection but he adds it is true that there is some degree of overlap with income protection.
He says: “These two plans complement each other and should not be looked at as either/or.
“If income ceases then the client may not be able to retain his critical illness cover so whilst they may both pay out for the same condition they should be adjudged separately.”
Serious illness covers is also sometimes positioned as an alternative to critical illness.
Serious illness covers tend to pay smaller amounts for non-critical conditions, warns Georgina Shield, senior product manager of insurance at Legal & General, and for the critical conditions she says they still often pay less than the 100 per cent offered by the main critical illness cover providers.
While not doing exactly the same job as critical illness cover, based on specific client circumstances, Ben Heffer, insight analyst for life and protection at Defaqto, says one or more of the following may be suitable as an alternative recommendation:
1) Income protection insurance.
Mr Heffer says most people will need to replace income if they can’t work due to accident or sickness, but critical illness cover is unsuitable for doing that for two reasons.
First, he points out most long term absences from work are due to back problems and mental health issues, which are not covered by critical illness insurance; second, the large sum assured needed to invest for an income over the long term is largely unaffordable.
2) Private medical insurance.
While a critical illness benefit could be used to pay for private health treatments, Mr Heffer says if private health is really what is required then an adviser should consider recommending PMI.
3) Terminal illness benefit.
Most life policies, including some whole of life policies, have a terminal illness benefit, according to Mr Heffer.
This means the sum assured is paid early if the life assured has been given a short time to live.
Mr Heffer says such payments can be used to alleviate the financial burden of their illness and help them to be able to spend what time they have left with their families.
