Protection · 7 min read

Life insurance, critical illness or income protection? Start with the financial problem

Life insurance, critical illness cover and income protection are often grouped together, but they are designed around different financial events. A more useful starting point is to ask what money would need to do if somebody died, became seriously ill or could not work for a period of time.

General guidanceNo enquiry requiredNext steps included

Life insurance usually starts with the effect of a death

The planning question is what debts, income needs or family costs would remain if an insured person died. Mortgage debt, childcare, education and income relied on by the household can all form part of that gap. The exact policy benefits, exclusions and eligibility depend on the contract and provider.

Critical illness cover addresses a different event

Critical illness policies can pay a lump sum when a covered condition meets the policy definition. The person is still alive, so the financial need may include time away from work, treatment-related costs, home changes or reducing debts. Covered conditions and definitions vary by policy.

Income protection focuses on ongoing income

Income protection is designed around the loss of earnings when illness or injury prevents work, subject to the policy terms. Start with essential monthly spending, employer sick pay, savings and how long the household could manage before deciding what level and duration of cover needs professional review.

One policy does not automatically replace the others

A lump sum after death, a lump sum after a specified serious illness and a regular income benefit solve different cash-flow problems. Existing employer benefits and current policies should be included before assuming there is a gap or buying duplicate cover.

Review the need after major life changes

A new mortgage, child, salary change, business ownership, separation or change in employer benefits can alter the financial gap. Product suitability, medical underwriting, policy definitions and affordability should be assessed by an appropriately authorised professional where advice is required.