Life Insurance, Critical Illness & Income Protection: What’s the Difference?

Taking out a mortgage is a major financial commitment. But while most of us insure our homes and possessions, it's easy to overlook something just as important – the income that pays for them.

Life insurance, critical illness cover and income protection are three common types of protection, but they are designed to do different things.

Life insurance

Life insurance is designed to pay out if you die during the term of the policy, subject to the policy's terms and conditions.

For homeowners, life cover can potentially be arranged with the intention of helping loved ones repay some or all of a mortgage if the insured person dies.

The appropriate amount and type of cover will depend on your individual circumstances.

Critical illness cover

Critical illness cover is different.

It's designed to pay out if you're diagnosed with a specified serious illness covered by your policy and meet the insurer's definition.

The money could potentially be used towards your mortgage, household bills, adapting your home or other financial commitments while you focus on your health.

It's important to remember that policies don't cover every illness and definitions and exclusions can vary between insurers.

Income protection

Instead of providing a single lump sum, income protection is generally designed to provide a regular income if you're unable to work because of illness or injury, subject to the policy terms.

There will normally be a waiting or deferred period before payments begin, and the amount and duration of payments will depend on the cover selected.

Do I need all three?

Not necessarily.

Protection should be based on your circumstances rather than simply buying every type of policy available.

Your income, mortgage, savings, dependants, existing employer benefits and monthly budget can all influence the type and amount of protection that may be appropriate.

For example, someone with substantial sick pay through their employer may have different priorities from a self-employed person with no employer sick pay.

Protection is about having a plan

Nobody likes thinking about becoming seriously ill or being unable to work. But considering how your household would cope financially can be an important part of taking on a mortgage.

As mortgage & protection advisers, we can look at your circumstances and help you understand the options available, so you can make an informed decision about the cover that's appropriate for you.