Investing & Money
piece written on the 3rd September 2015 by  

Over the past month we’ve been looking at critical illness cover and it’s time to look at income protection cover and what the difference is between the two.

To remind ourselves, critical illness cover by definition is a life-threatening or permanent lifestyle-altering condition, which is generally, specifically/clearly defined such as cancer or a stroke. The advantages of critical illness cover are as follows:

  1. To pay for cost of specialist care and alternative treatment;
  2. To pay for recuperation aids;
  3. To fund unforeseen changes in lifestyle;
  4. To top-up cover for medical aid; and
  5. To settle any debts.

In order to understand the importance of income protection we need to look at the definition of income protection cover. The purpose of income protection cover is to provide you with a monthly income benefit for a specified period to replace the income, or part thereof, that you usually earn from your primary occupation. The cover provides money if you become disabled and are unable to work. The advantages of having income protection cover are:

  1. It covers temporary losses in income due to disability, illness or injury;
  2. It covers partial losses in income due to disability, illness or injury;
  3. You protect one of your most valuable assets: your ability to earn income;
  4. Income streams remain uninterrupted even when you cannot work.

The Differences

Disability benefits are designed to protect your income in the event of disability, which is linked to your ability to work and earn an income. For this reason a claim is normally paid if, due to an injury or illness, you are no longer able to perform your occupation. Critical illness benefits allow you to protect your lifestyle by finding the cost of changes to your lifestyle or additional expenses incurred as a result of a critical illness event. Claim definitions for critical illnesses are not linked to whether a person is able to perform his/her occupation but rather to whether objective medical definitions are met.

As you can tell, there is a big difference between to two although it feels as though there are similarities. It’s important to understand the differences in order to make an informed choice as to which cover you need. The question is, do you need both critical illness and income protection cover?

The answer is quite obvious based on what I’ve defined above; the two types of cover are designed for different risk events and although in your life one benefit may feature more prominently than another, these are risk events and therefore you have to ask yourself whether you want to take a risk or be covered for a risk! For me though, the important factor here is knowing that events such as heart attack, stroke or injury aren’t predictable and they usually occur when least expected. Because of this, it’s hard to deny that being covered is really important. When you experience a life-threatening or income-threatening event the last thing you want on top of that is a worry over money or being increasingly stressed as you eat into your hard-earning savings.