How To Protect Your Income If You’re Sick Or Become Ill

Written by Jane Wardle on February 28, 2019

Updated March 9, 2022

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Many individuals worry about what would happen if they become sick or get an injury that means they can no longer work and earn a living. Becoming seriously ill could mean you can no longer do your job and have a steady income and could even result in you losing your home and not being able to pay your regular expenses.

The idea of becoming seriously ill in the future and being in a position where you can no longer work can be overwhelming and difficult to think about, but life can be unpredictable, and it is important to prepare for the worst. There are insurance policies out there that can protect your income and help you financially if you ever find yourself in a position where you can’t work due to illness or injury.

What is income protection insurance?

Income protection insurance is a popular choice for individuals who want peace of mind that they will still be financially stable if they are no longer able to work and earn an income. Sometimes called permanent health insurance, income protection insurance is a type of insurance policy that will pay you a regular income if you become unable to work because of illness or injury.

When you take out income protection insurance, you will be sure that you will continue to receive a regular income until either you are able to return to work or until your retirement age.

Income protection insurance will replace all or part of your usual income if you can no longer work and will continue to pay you monthly until you retire, pass away, return to work, or the policy ends.

With most policies, there is a set waiting period before the payments start, and usually, this is until your sick pay ends. There is generally a list of covered conditions that will result in a payout, and you should always be sure to check over this list before you take out a policy, as it will vary depending on the provider.

Many people think you should only consider income protection insurance if you have a family or children to provide for, but it doesn’t matter if you have dependents or not. If being unable to work would leave you struggling to pay your bills, then it is worth considering income protection.

What is critical illness cover?

Critical illness cover is another option for protecting your income if you become seriously ill. It is a long-term insurance policy which covers you against certain serious illnesses such as cancers, strokes and heart attacks.

In contrast to income protection insurance, critical illness cover will pay you one tax-free lump sum should you be diagnosed with a serious illness. This lump sum can then be used to help towards things like your mortgage, bills, debts and any alterations to your home that you may need such as wheelchair access.

It is important to remember that not all conditions will be covered by critical illness cover, and many policies will also state how serious the condition should be. With this type of cover it will pay out once, and then the policy will end, and while it works similarly to life insurance it is vital that you understand the differences.

Life insurance will pay out to your family after you pass away, whereas critical illness cover will pay you if you are diagnosed with one of the defined conditions such as Cancer or Heart Attack. Life insurance and critical illness cover are often sold together, or as one policy, that will pay out either on the diagnosis of a critical illness or after your death.

Critical illness cover is worth considering if you do not have enough savings to live off should you become seriously ill and unable to work. Also, if you do not have an existing employee benefits package that will cover time off due to illness.

What is short-term income protection insurance?

Short-term income protection insurance is designed to help you pay your rent and other expenses if you are unable to work for a short period of time due to sickness or injury. This type of insurance policy will usually pay out an agreed monthly amount for a period of around 12 months if you are unable to work because of injury or illness.

The payments will either stop when you return to work or at the end of term of the policy. Short-term insurance protection insurance will only cover certain sicknesses and injuries, and will usually exclude pre-existing conditions, self-inflicted injuries and illnesses resulting from drug or alcohol abuse.

It is common to confuse short-term income protection insurance and income protection insurance. It is vital you properly understand the differences in order to choose the policy that is right for you.

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