Introduction
There is no single right answer to this question. As with other areas of financial planning, it depends on your own individual circumstances. What is your occupation, your financial situation, your life stage, do you have dependants and what are your financial goals? These are just some of the questions which can help you answer which product is better for you.
In summary, Income Protection and Serious Illness are both types of insurance plans designed to provide financial security in times of need. While they share the goal of safeguarding you against financial hardships, they differ significantly in their scope, benefits, and the scenarios they are designed to address.
The Differences
The main difference is that Serious Illness cover pays a once-off lump sum when you claim. Whereas Income Protection pays a regular income. There are also differences in the way tax is treated on both the premiums and benefit. In addition, there are also a range of other differences that need to be considered.
Income Protection
Income protection cover primarily focuses on replacing a portion of your income if you’re unable to work due to illness or injury. This product usually pays out a percentage of your regular income, ensuring you have a steady stream of money to cover essential expenses such as mortgage or rent, bills, and daily living costs. The payout is generally a monthly benefit and continues until you can return to work, retire, or until the policy term ends.
Serious Illness Cover
On the other hand, serious illness cover provides a lump sum payment if you are diagnosed with a specific serious illness listed in the policy conditions. These illnesses would usually include cancer(s) and heart conditions as well as illnesses like MND and Dementia. Unlike income protection, serious illness cover doesn’t replace lost income but provides a one-time lump sum payment upon diagnosis of a covered condition. This payment can help ease the financial burden of medical expenses or adjustments to your lifestyle, such as modifying your home for accessibility or seeking specialized treatments.
| Serious Illness | Income Protection |
| Pays a lump sum | Pays a regular income |
| Covers only the illnesses specified in your plan | Covers any illness, injury or disability that prevents you from working |
| Tax relief is not available on your premiums | Tax relief is available on your premiums |
| Benefit payments are tax free | Benefit payments are taxed |
| The plan stops once you have claimed | You can claim as many times as you need (once you continue to pay premiums) |
| Cover available regardless of your occupation | Cover is occupation dependent |
As you can see from the above, there are important key differences between the two types of products. Combine these with your own requirements and you’ll see that there are many factors to be considered. When considering which type of cover to choose you need to consider the type of financial protection you need, the scope of coverage provided by the product, the cost and amount and duration of cover payment.
Conclusion
Choosing between income protection cover and serious illness cover will depend on your individual circumstances, financial needs, and risk tolerance. Both products serve crucial roles but differing roles in providing financial security. We can help you better understand what each cover will provide for you, and which will better meet your own requirements. Just contact us at Coleman Financial Planning to have a chat.