Protecting yourself in case of death or illness is a very sensible thing to do. Most people put it off – because we have this habit of thinking it won't happen to us (even if we know it definitely can). Both of these scenarios can have a big financial impact on you and the people around you – but products like life insurance, income protection and critical illness cover can make sure no-one's left struggling financially as a consequence.
Each of these insurance policies does different things and pays out in different scenarios, so it's important to know what's what before choosing what to buy. Which product is right for you and how much cover you need depends on your circumstances. In particular, whether you have anyone relying on you financially, or anyone supporting you. This makes a big difference to what you'll need, insurance-wise.
Generally speaking, since these types of cover protect against death and illness, they're cheaper the sooner you buy them – but we'd only ever recommend doing that if you really have a need for them. The price goes up with age and will also be affected by other factors like your health history and lifestyle.
Which product is right for you and how much cover you need depends on your circumstances. In particular, whether you have anyone relying on you financially, or anyone supporting you.
Death and illness insurance: product comparison table
|Life insurance||Income protection||Critical illness cover|
|How it pays||Lump sum||Monthly sum||Lump sum|
|When it pays||If you die||If you can't work for health reasons||If you're diagnosed with a critical illness|
|Who it pays||Your partner/family||You||You|
|Useful for||Making sure your loved ones would be financially secure if you died – whether it's paying off debts or covering ongoing expenses||Making sure you'd always have money coming in even if you couldn't work for health reasons – so you could still pay the bills||Helping you cope financially if you're diagnosed with a critical illness or condition – giving you a financial cushion while you recover or adjust|
|Needed if||You have financial dependents – i.e. other people who'd be financially affected by you dying||You'd face a financial shortfall if you lost your income for health reasons||You'd struggle financially if you couldn't work after a critical diagnosis|
|Not ideal if||You don't have any financial dependents (because no-one would be financially affected by you dying)||You're not in paid work, as you won't be eligible – e.g. you're retired or you're a full-time parent||You lose your income because of an illness or injury that's non-critical (and therefore not covered)|
|Good to know||It's often very affordable – especially if you buy it when you're young, fit and healthy||Provides longer-term protection against illness than sick pay (if you have it) and means not having to use up savings||Pays straight away if you're diagnosed with one of the illnesses or conditions listed in your policy|
Life insurance: key facts
- Life insurance is an insurance policy that pays out a lump sum if you die
- It's there to make sure anyone who depends on you financially wouldn't be left struggling if you died
- You can either buy a level policy (which would always pay out the same amount) or a decreasing policy (which pays out gradually less over time) – depending on what the money would be needed for
- The price of life insurance is different per person because it depends on what cover you're buying (i.e. how much, what type, for how long) and other factors relating to you and your lifestyle (i.e. your age, smoking status, health history)
Income protection: key facts
- Income protection is an insurance policy that pays out a monthly sum if you're unable to work for health reasons
- It's there to make sure you and anyone else who relies on you could cope financially if your income was missing because of an illness or injury
- You can either buy a full-term policy (which pays out for as long as you need it to per claim – until you're well enough to go back to work) or a short-term policy (which pays out for a fixed period of time per claim – like 1 or 2 years)
- Income protection policies always come with a waiting period, which is the amount of time you wait between becoming unable to work and starting to receive payments – it can kick in after your sick pay runs out or at the point when you'd start needing financial support
- The price of income protection depends on the level of cover you're buying, whether your payment period is full-term or short-term, as well as other factors relating to you and your lifestyle (i.e. your age, smoking status, health history)
Critical illness insurance: key facts
- Critical illness cover is an insurance policy that pays out a lump sum if you're diagnosed with one the illnesses or conditions listed in it
- It's there to help you cope financially in the wake of a diagnosis – which can make all the difference if you need to take time off work while you recover or adjust
- You can either buy critical illness cover on its own, as a standalone policy, or alongside your life insurance, as a combined policy
- If you buy a combined life insurance and critical illness policy, bear in mind that your policy will end if you claim the main critical illness benefit (so you'd no longer be covered in case of death)
- You can often add children to your critical illness policy at no extra cost – and they'll usually be covered for the same illnesses as adults, as well as some additional child-specific illnesses
- The price of critical illness cover depends on what cover you're buying (i.e. how much, what type, for how long) and other factors relating to you and your lifestyle (i.e. your age, smoking status, health history)