What is the difference between critical illness cover and income protection

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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, updated on November 25th, 2021       

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On the surface, critical illness cover and income protection might look like one of the same things, but they are not. Both aim to give you cover by paying out a lump sum should you be put out of action and no longer be able to generate an income. But when looking at the pros and cons of both the question remains; which cover will be best for you?

The basics of critical illness cover

Critical illness cover is a way to cover you should you be diagnosed with a serious health problem that could possibly alter your life in one way or another. There are specific types of illnesses that insurers cover and some that they don’t, therefore it is important to read the small print of the policy. This will put you out of work for a considerable amount of time and the medical bills can start stacking up very quickly. However, you can have peace of mind with critical illness cover as it provides a lump sum of money for you to cover things such as:

  • Medical bills
  • Pay bills
  • Restructuring your house should you be unable to walk
  • Everyday expenses
  • Mortgage

The basics of income protection cover

Income protection is tied to your earnings and helps cover that should you fall sick or sustain an injury. Safe Works Australia reported that there were 104,770 serious claims that were made in 2015. 11 370 people were put out of work due to diseases.

You are paid 75% of your income on a monthly basis to cover expenses due to the fact that you are unable to work.This amount is paid out until you are able to return to work, and it will continue to be in existence until you retire. You can make multiple claims throughout the existence of your policy until you personally cancel it out. The benefits of having income protection are that it can cover you from any illness or injury that prevents you from working.

There are a few similarities

  • Both provide cover for illness and injury that prevents you from working
  • Pay out can be used for whatever purpose you wish to use it for
  • Both come with a guaranteed/ fixed premiums

There are many differences

  • Income protection is tied to your earnings while critical illness cover isn’t
  • Critical illness cover pays out one lump sum then the policy terminates, while income protection pays out on a monthly basis and you can make claims multiple times
  • Critical illness focuses on covering specific illnesses while income protection covers you no matter what illness or injury you have sustained
  • Income protection limits your pay out to 75% while critical illness pays out any amount that you want covered

The final verdict?

It all comes down to you. Both critical illness cover and income protection are useful policies in their own right, and can be useful in times where you need it the most. However, depending on your financial circumstances and your needs you will choose the one that best suits you.

It is best to consider the terms and conditions that come with both policies and weigh them before deciding, or you can choose the best of both worlds to increase your coverage. You can then compare quotes to find one that has the best deal and value for your money.